Nova Scotia’s Provin-cial Government has passed legislation that compels companies to ensure all pensions are fully funded when the companies leave the province or wind down their plans.

Although the new law is intended to benefit all employees in the province, the government had 300 particular individuals in mind when it drafted, then passed, Bill 4, the Pension Benefits Act (amended) in late 2007 and made it retroactive to May 1. That’s the date the TrentonWorks Ltd. manufacturing plant in Pictou County shut down without a fully funded pension plan for its workers.

The plant, one of Canada’s first steel manufacturing and fabrication facilities, was 9% short in company contributions. Under then-existing legislation, TrentonWorks — owned by Greenbrier Cos., an Oregon-based supplier of transportation equipment and services to the railway industry — was under no legal obligation to fund the pension plan fully. It is now.

The new legislation, passed unanimously on Dec. 12, requires all companies in Nova Scotia to fund all solvency deficiencies within five years of the legislation to ensure plan members receive promised benefits.

“We have done all that we can do to ensure that companies fully fund all benefits of a defined-benefit pension plan,” said Minister of Environment and Labour Mark Parent in the house of assembly.

The amended legislation, he added, “means that Nova Scotians, when they lose their jobs because their company is closing or relocating, will know that the funds that their company put into the pension plan will be enough to secure their pension benefits.”

NOT ALONE

Nova Scotia is not alone in protecting pension plans. “Currently, only the federal government, Saskatchewan and Newfoundland and Labrador do not have terminal funding,” says Nancy MacNeill Smith, superintendent of pensions for Nova Scotia.

Marie Kelly, assistant director for the United Steelworkers Ontario/Atlantic, finds that astounding. “It boggles the mind that this legislation existed as it did,” she says of Nova Scotia’s outdated previous legislation.

One reason for the legislation remaining on the books may simply have been that there was no urgent need for an amendment until the TrentonWorks case. But in the absence of a legal requirement, there were ethical ones at work.

“It’s moral suasion, if nothing else,” says Karen DeBortoli, director of the Canadian Research and Innovation Centre at Watson Wyatt Worldwide in Toronto. “The only circumstance in which you’d expect to be told you would not receive anticipated benefits is insolvency.”

It’s not a common occurrence for employers to “walk away” from pension liabilities unless they’re bankrupt, she adds.

It appears someone forgot to tell this to TrentonWorks. According to the USW, when Greenbrier announced the closure of the plant, the company informed union members that their pension plan would have a solvency deficiency of about 10% when it was wound up. More significantly, Greenbrier declared that it was under no obligation under the Pension Benefits Act to fund that deficiency.

Certainly, the company railed against the passing of the new legislation. When former Nova Scotia premier and current TrentonWorks chairman Gerald Regan appeared before the province’s law amendments committee, he slammed the bill as “retroactive and draconian.”

“He argued that this was bad legislation because the state of the pension plan was negotiated between the company and the union,” says Graham Steele, a New Democratic Party member of the legislative assembly. “[Regan inferred it] sends a terrible signal to anyone interested in investing in the future.”

It was an argument no one was buying. “The politics of the situation,” Steele says, “were such that all three parties agreed to address this retroactively.”

The local MLA for Trenton, a member of the minority Progressive Conservative government, had publicly promised the pension bill would pass, thus forcing his Conservative colleagues in the house to keep that promise. “The government was behind the eight ball,” Steele notes. “The other parties supported it because of workers being laid off. [The workers’] prospects are not good.”

DOESN’T HOLD WATER

In addition, TrentonWorks’ argument doesn’t hold water, DeBortoli says: “I understand why Regan is saying that, but I haven’t heard of anybody not investing because of this.

“If there is money in the company, you would expect the company to be held to its promise and fund the pension plan as agreed,” she adds. “This is not an additional cost. This is not a penalty.”

@page_break@Ironically, the old legislation may have contributed to TrentonWorks’ exodus from Nova Scotia. “Trenton-Works is a very profitable company that decided it would produce its product in Mexico,” Kelly says. “The law created an incentive for a company to shut down and start up elsewhere.”

Such an incentive no longer exists — at least, on paper. “But now that the law has been changed, can the province enforce it?” Steele asks. “It’s an out-of-province company and its only [local] assets are the plant itself.”

TrentonWorks has five years to meet its financial obligations with respect to the plan. If it fails to do so, the province can issue an order to pay up. “If the order can’t be satisfied,” MacNeill Smith says, “then the pension plan becomes one of the creditors of the company.”

Whether Greenbrier pays up without pressure remains to be seen. In the meantime, those few remaining provinces without terminal legislation on the books are likely to follow Nova Scotia’s path and pass equivalent acts. Says MacNeill Smith: “There’s no opposition to this.”

In fact, the principle has been endorsed nationally by the Canadian Association of Pension Supervisory Authorities, she notes. For its part, Nova Scotia has also announced that an advisory panel will be established to review current legislation.

“With our aging workforce, pension issues are becoming increasingly important to Nova Scotians,” Parent says, “and we want to make sure that our legislation is modern, effective and efficient.” IE