The Financial Services Commission of Ontario has set out new criteria for pension mergers.

On July 8, the Supreme Court of Canada dismissed ING Canada Inc.’s application for leave to appeal the Ontario Court of Appeal’s decision in Aegon Canada Inc. and Transamerica Life Canada v. ING Canada Inc. The Court of Appeal’s decision is now final.

In that decision, the court held that surplus assets derived from a pension plan that was subject to a trust could not be used to fund liabilities derived from another plan that was not subject to that trust. The two plans had been merged for administrative purposes, but the assets and liabilities of each had been maintained separately. Despite this, surplus from the plan that was subject to a trust was applied to fund liabilities and contribution holidays respecting liabilities from the other plan.

As a result of the decision, where the superintendent is asked to approve the transfer of assets in circumstances where one or more of the plans in question is subject to a trust, the superintendent must be satisfied that the Transamerica decision does not apply. When determining whether to consent to an asset transfer, the superintendent is required to refuse consent where the transfer would not protect the pension benefits and other benefits of the exporting plan members.

The criteria used to determine whether a transfer or merger application complies with the Act and regulation are set out in several published policies. FSCO has added criteria in addition to the criteria set out in those policies.

The superintendent has taken the position that the Transamerica decision does not prevent the consideration of an application for transfer of assets on sale or merger where:

  • the plans that are the subject of the application do not have any defined benefit component, or if they do, the plans are not subject to a trust (with an analysis of all plan documents from the plans’ inception);
  • the transfer is being made to a newly established plan, under certain conditions;
  • the receiving plan, in the case of a transfer or merger, undertakes, to maintain the transferred assets separate and apart from the other assets of the plan, among other conditions; and
  • a court has determined that the transfer of assets is legal and binding and all rights of appeal have been exhausted.

Other applications that can be differentiated from the Transamerica decision will be considered on a case-by-case basis. Additional circumstances where the Superintendent would consider the benefits of members to be protected may be identified in future web postings or policies, FSCO says.

http://www.fsco.gov.on.ca/FSCO_UW_MainEngine.nsf/docuniqueid/A4C75AC42CB92AE285256F5F006CE408?opendocument