Pension Surplus

Status Report on Federal Pension Plans and Surplus Litigation

STATUS REPORT ON FEDERAL PENSION PLANS AND SURPLUS LITIGATION
June 29, 2004

Where are the Lawsuits Now?

Oral examinations for discovery of the Federal Government have now been completed, apart from follow-up required to obtain undertakings and compel answers to certain questions.

The examinations for discovery of the Plaintiffs are scheduled to begin in September, 2004. It is likely that one representative will be examined in each of the three lawsuits involving the Public Service Superannuation Plan, the Armed Forces Superannuation Plan and the RCMP Superannuation Plan.

We expect that the discovery phase of the litigation will be substantially completed by the end of 2004 and we have begun developing plans for presenting this very complex case at trial. This work will intensify as the discovery phase winds down. No date has yet been set for the trial. Trial scheduling will follow a Pre-Trial Settlement Conference, which we hope will be held later this year or early 2005.

What have we Learned?

The Discovery process has shed a great deal of light on how and why the Government dealt with the surplus as it did. Briefly, we now know that the Government’s approach to dealing with the surplus was intimately linked to its desire to reduce the federal budget deficit in the mid-1990’s. The Government discovered that accounting rules permitted it to quietly “amortize” the surplus and reduce the size of the stated budget deficit, even though the balances reported in the Superannuation Accounts would not be reduced. The net result, which was effectively hidden from employees, was the equivalent of a contribution holiday for the Government for much of the decade – a period in which employees continued to make their contributions in full. To make matters worse, one of the basic reasons for the emergence of the surplus in the first place was wage restraint and salary freezes! By 1995, $14 billion in surplus was already built into the Government’s internal plan to reduce the deficit. None of these manoeuvres were disclosed to Treasury Board’s Advisory Committee on Pension Reform, which included members from the federal unions.

In 1999, Treasury Board proposed a new “pension deal”, but the Department of Finance refused to permit any discussion of sharing of surplus or transferring of the existing surplus to the new pension fund. Although it didn’t say so at the time, the Government needed to use the surplus to meet its deficit reduction targets. When the employee side refused to agree to the Government’s “deal”, Bill C-78 was the Government’s answer. Under this version of “pension reform”, employee contributions increased and the Government retained all the surplus which had by 2000 grown to about $30 billion.

Amendment to the Claim

In January, 2004, an amended Statement of Claim was filed with the Court in the Professional Institute et al v. AG Canada action. The claim was substantially amended to reflect information obtained from Government documents and witnesses through the discovery process and to take account of recent decisions of the Supreme Court of Canada dealing with the Canadian Bill of Rights.

Our Case

Because the superannuation plans are legislative plans not subject to normal pension plan regulation, the interpretation of the superannuation legislation is at the heart of the case. When “pension reform” was enacted by Parliament, legislators were informed and understood that withdrawal of the surplus would not impact on employees because the Government “owned” all the surplus. However, we now know that privately the Government recognized that employees had a basis for claiming some or all of the surplus. In an internal Treasury Board Circular, for example, Treasury Board said this about the superannuation accounts: “The ownership of the funds remains with the participants in the plan or program, at least for the portion they personally contributed and any interested applicable thereon”.

Our position is that in enacting Bill C-78, Parliament did not intend to take any surplus in the accounts belonging to employees and the legislation should be interpreted accordingly. As with the interpretation of any legislation, a full understanding of the context in which the legislation operates is critical.

In this case, the factual and legal context in which the plans operate has many dimensions: pension administration; actuarial issues; employee compensation; public finance and accounting rules; and fiduciary responsibility.

We believe that a full understanding of this context and the way in which the Government exercised its power as administrator of the plans does not support the Government’s contention that is owned the surplus. We remain committed to doing everything possible to persuade the Court to reverse the largest surplus seizure in Canadian history.

2004-07-13T00:00:00

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