PENSION PLANS AND TRUST LAW
The Supreme Court of Canada ("SCC") recently considered the interplay between traditional trust law and closed pension plans. In Buschau v. Roger Communications Inc. [2006] S.C.J. No. 28, the SCC held that members of a closed pension plan could not rely on traditional trust law principles to require the termination of the pension plan and distribution of its surplus.
Pension plans have their own set of unique contractual and legislative rules that operate outside of traditional trust law. In Buschau v. Roger Communications Inc., members of a closed pension plan registered under the Pensions Benefits Standards Act, 1985, sought to terminate the underlying trust of the plan and distribute surplus assets in the plan on the basis of the rule in Saunders v. Vautier.
According to that common law rule, the terms of a trust can be varied or the trust terminated if all beneficiaries of the trust, being of full legal capacity, consent. The SCC held that members of the pension plan could not invoke the rule in Saunders v. Vautier to terminate the trust. It required that beneficiaries seeking early termination possess the sum total of vested, not contingent, interest in the trust corpus. The members did not have absolute entitlement to the surplus until the pension plan and trust were terminated.
The common law rule further required the consent of all parties who had an interest in the trust property. The court could not consent on behalf of current spouses and common law partners who were of full legal capacity, nor could consent be given on behalf of unascertainable future spouses and common law partners, since termination was presumably not in their best interests.
Moreover, applying the rule in Saunders v. Vautier would contradict the reasonable contractual expectations of the parties, since the terms of the pension plan did not give rise to a reasonable expectation that the members could terminate the trust over the employer's objections so that they might obtain the surplus. Simply put, the rule in Saunders v. Vautier could not be easily incorporated into the context of employment pension plans. According to the court, such plans were heavily regulated. The Pensions Benefits Standards Act, 1985 dealt extensively with the termination of plans and the distribution of assets. It was clear from this explicit legislation that Parliament had intended its provisions to displace the common law rule in Saunders v. Vautier.
Have a great day. Justin de Vries --------
