The Ontario Court of Appeal has upheld a decision in favour of the Superintendent of Financial Services Commission of Ontario against Monsanto Canada Inc., National Trust and the Association of Canadian Pension Management.

In the decision, the court found an earlier ruling against FSCO by Ontario’s Financial Services Tribunal wrong and unreasonable. The central issue in the case is whether an employer who implements a partial wind up of its defined benefit pension plan has a legal obligation to distribute that part of the actuarial surplus then in the plan that is attributable to the members of the plan who are affected by the partial wind up.

The Divisional Court determined that the Ontario Pension Benefits Act imposes that obligation and that the employer cannot negate that obligation. The Court of Appeal upheld that finding today.

Monsanto and National Trust were both seeking to proceed with a partial wind up of their pension plans without distributing any part of the plan’s surplus.

Back in 1998 FSCO Superintendent Dina Palozzi served Monsanto with a notice of proposal to refuse to approve the company’s partial wind up report. The notice set out a number of objections, but foremost among them was that the report did not provide for the distribution to the affected members of surplus assets relating to that part of the plan being wound up.

Monsanto’s response was to exercise its right to require a hearing by the Financial Services Tribunal. At the hearing, the Tribunal issued a decision ordering the Superintendent to refrain from carrying out the proposal to refuse to approve the partial wind up report, and ordering her to approve it.

Palozzi appealed the Tribunal decision to the Divisional Court, and the court found in her favour. The Divisional Court allowed the appeal, set aside the order of the Tribunal, and ordered that the Superintendent carry out the notice of proposal to refuse to approve the partial wind up report because it did not comply with the Act.

“I think that the right interpretation is that made by the minority of the Tribunal and adopted by the Divisional Court. Members affected by a partial wind up are to be dealt with as if there had been a full wind up at the partial wind up date. The Affected Members have the right to have distributed that portion of the surplus that relates to that part of the pension plan being wound up,” the appeal court said.

The court found that the Tribunal’s majority opinion was not just wrong, but unreasonable.