The Supreme Court of Canada has upheld the decision of Ontario’s Superintendent of Financial Services in the Monsanto Canada Inc. case, requiring surplus pension assets to be distributed to terminated workers in a partial winding up of a pension plan.

The case has its origins in a reorganization of Monsanto Canada in which 146 active members of the pension plan received notice that their employment would be terminated. The Superintendent of Financial Services refused to approve Monsanto’s partial wind up report because it failed to provide for the distribution of surplus assets related to the part of the pension plan being wound up.

This decision was appealed to the Financial Services Tribunal. A majority disagreed with the superintendent and ordered her to approve the report, holding that the Ontario Pension Benefits Act provides no more than a right to participate in surplus distribution when, if ever, the plan fully winds up. However, the Divisional Court set aside the Tribunal’s order and upheld the superintendent’s decision. The Court of Appeal upheld that decision, dismissing the appeal. On Thursday, the SCC validated the lower courts’ decisions.

Both Monsanto and the Association of Canadian Pension Management were appealing the lower court decisions. The Financial Services Commission of Ontario says that it is currently reviewing the decision, and further information will be posted to its website as it becomes available.

The high court held that the appropriate standard of review applicable to the Financial Services Tribunal’s is “correctness.” On that count, it sided with the Superintendent and the courts. “The Pension Benefits Act is public policy legislation that recognizes the vital importance of long-term income security. Its purpose is to establish minimum standards and regulatory supervision in order to protect and safeguard the pension benefits and rights of members, former members and others entitled to receive benefits under private pension plans.”

The court says the Act seeks to ensure a balance between employee and employer interests that will be beneficial for both groups, and that policy and practical reasons favour an interpretation requiring distribution upon partial wind up.

“Since pension plans are theoretically intended to be indeterminate in nature, it is reasonable for affected members to be subject to the risks of the plan while they are a part of it, but not after they have been terminated from it. The most equitable solution is thus to distribute the fortunes of favourable markets at the time affected members are terminated. In this way, the windfall is related to their actual time and participation in the plan.

“Moreover, the increasingly mobile nature of labour should be recognized. The affected members should be able to know their status at the time of their termination so as to arrange their affairs accordingly and not be indefinitely tied to an employer that laid them off.”