Name of Case: Professional Institute of the Public Service of Canada v. Canada (Attorney General)

Judgment under Appeal: Judgment of the Ontario Court of Appeal dated October 8, 2010.

Facts: Pursuant to the Public Service Superannuation Act enacted in 1954, and the Canadian Forces Superannuation Act and the Royal Canadian Mounted Police Superannuation Act enacted in 1960, the federal government provides pension plans respectively for members of the public service, the RCMP and the Canadian Forces. The three plans are essentially the same, and are all contributory defined benefit plans.

The three Superannuation Acts established corresponding Superannuation Accounts. Employee contributions to the plans were required to be deposited into the government's Consolidated Revenue Fund (CRF), and the amount of those contributions was reflected as a credit in the appropriate Superannuation Account. Amounts payable pursuant to the Superannuation Acts were paid from the CRF and charged to the appropriate Superannuation Account. Thus, the Superannuation Accounts tracked the amounts received and paid under the Plans but it was the CRF that actually received and disbursed money.

Prior to April 1, 2000, all required contributions by employees and the government under the plans were recorded as credits to the appropriate Superannuation Accounts. The transactions and balances in the Superannuation Accounts were reported annually in the Public Accounts. The total amount set out in the Superannuation Accounts as being necessary to meet pension obligations under the plans was shown as an ongoing liability of the government in the Statement of Assets and Liabilities.

Through actuarial valuations mandated by the Superannuation Acts and the Public Pensions Reporting Act, estimates were made of the value of the "assets" in the Superannuation Accounts and of the cost of the pension liabilities. The difference between the two amounts constituted an actuarial surplus or deficit.

Beginning in the early 1990s, the Public Accounts showed that there was an actuarial surplus in the Superannuation Accounts which reached $16.6 billion by December 1992, climbing to $23.4 billion in March 1996 and $30.9 billion in March 1999. In the 1990-91 fiscal year, the government began to "amortize" the actuarial surplus in the Superannuation Accounts, amortizing a total of $18.6 billion in the 1990s, with further amounts being amortized after 2000. The amount amortized each year was recorded in a separate account and "booked" into the fiscal framework and applied to effectively reduce the annual pension expense of the government, as disclosed in the Statement of Revenues and Expenses. The amortized amount also reduced the liability disclosed in the Statement of Assets and Liabilities for the Superannuation Accounts, thus reducing the government's annual budget deficit, but the amortization of these amounts did not affect the balances shown in the Superannuation Accounts.

In 1999, Parliament enacted the Public Sector Pension Investment Board Act, Bill C-78, which came into force on April 1, 2000. This legislation amended the Superannuation Acts, creating a new pension fund for each plan to receive all employee and government pension contributions made after it came into effect. The pension fund for each plan effectively replaced the Superannuation Accounts from April 1, 2000 forward.

Bill C-78 added to the Superannuation Acts new subsections that provided that the Minister must debit any amount that exceeded 110 percent of the amount estimated to be required to meet the cost of benefits payable. The Minister was also given the discretion to debit amounts from the Superannuation Account that were not estimated to be required to fulfill future pension obligations. The legislation also changed the basis for the government's annual contributions so that instead of being required to make contributions matching those made by employees, the government's contributions were now determined by the President of the Treasury Board, based on the actuarial valuations for each plan. All benefits paid for pensionable service prior to April 1, 2000 were charged to the appropriate Superannuation Account, while benefits paid for service thereafter were paid from the appropriate Pension Fund.

Between 2001 and 2004, the government relied on Bill C-78 to remove more than $28 billion from the Superannuation Accounts. Due to the previous amortization of these amounts, this removal had no effect on the Public Accounts.

Unions representing federal employees and associations representing federal pensioners, with the Professional Institute of the Public Service of Canada (PIPSC) and the Public Service Alliance of Canada (PSAC) as the lead plaintiffs, brought an action in Ontario Superior Court in which they effectively sought an order requiring the Government to return more than $28 billion to the plans. They maintained that the Government had breached its trust and fiduciary duties by amortizing the surplus amounts and by later removing those amounts from the Superannuation Accounts, rendering them unavailable for pension use.

Case History: In a November 2007 decision, [2007] O.J. No. 4577 (QL), an Ontario Superior Court trial judge dismissed the action, holding that the members of the plans had no interest in the Superannuation Accounts. The judge found that there could have been no breach of trust on the government's part because the amounts recorded in the Superannuation Accounts were not trust funds. In that regard, he determined that the legislation contained no intent to establish a trust and that there was no certainty of subject matter.

The trial judge further held that the Public Service Superannuation Act (PSSA) was a complete code, in that it set out all of the rights and obligations of the government and plan members. Since the government had no scope to exercise discretion, he concluded that it was not a fiduciary. Finally, the judge held that Bill C-78 authorized the government to remove surplus from the Superannuation Accounts, with the result that even if the plan members did have an interest in the surplus, Bill C-78 gave the government the discretion to debit surplus from the Superannuation Accounts. The Institute and the other plaintiffs appealed the Superior Court's decision to the Ontario Court of Appeal.

The Ontario Court of Appeal dismissed the appeal.

Writing the unanimous decision of a three-member panel of the Court, Justice Eileen Gillese ruled, first, that the trial judge had rightly determined that the Superannuation Accounts did not contain assets, because "[i]n essence, the Superannuation Accounts are legislated ledgers…. [T]he amounts shown in the Superannuation Accounts are only information or bookkeeping entries…. [T]he money went into the [Consolidated Revenue Fund]. The amount of the employees' contributions was then recorded as a credit in the appropriate Superannuation Account. Real money (i.e. the employee contributions) went into the CRF and real money was paid out of the CRF for pensions."

Next, Gillese found that the trial judge had erred in holding that the PSSA was a complete code prior to 2000. She reasoned that "the fundamental question raised by this litigation is what powers and obligations the Government had in respect of the actuarial surplus. As prior to the enactment of Bill C-78 the PSSA did not deal with the parties' rights and obligations in that regard, it cannot be said to have been a complete code." However, this finding of judicial error was of no assistance to the appellants' case, as Gillese went on to hold that "if the plan members have any equitable rights to the actuarial surplus, they do not flow from the PSSA. Nor do they flow from the employment relationship. Nor do they flow from trust principles. If they exist, they must flow from the Government's role as plan administrator."

Gillese determined that, in this role as plan administrator, the government did not have a fiduciary duty to the plan members, because its role did not meet the first criterion for being a fiduciary, namely having scope for the exercise of power or discretion over the property of another. She found that, while the government was able to exercise discretion over managing the credited amounts, it was not thereby exercising discretion over the property of another, because "there was no body of assets – that is, no property belonging to the plan members – that was affected by the exercise of the Discretion…. [A]mortization of the actuarial surplus was a series of ledger entries that altered the amount of actuarial surplus but did not actually affect property."
As for the appellants' argument that a constructive trust should be ordered either because it would satisfy the requirements of good conscience or because the government had been unjustly enriched by its use of the surplus assets in the Superannuation Accounts, Gillese held that "I accept neither submission."

She ruled that "for a constructive trust to be awarded based on good conscience, among other things, there must be a finding that the Government was under an equitable obligation at the time it amortized the surplus. As I have explained above, it was not." As well, she considered that "I do not see the Government as having been enriched by the amortization and removal of the surplus. When the Government's actions were limited to amortizing the actuarial surplus through an allowance account, while maintaining the amounts shown as credits in the Superannuation Accounts (i.e. pre Bill C-78), whatever benefit there was to such actions enured to all Canadian taxpayers. After 2000, withdrawal of the surplus was done pursuant to the provisions of Bill C-78. If there was an enrichment as a result of withdrawal of the surplus, Bill C-78 is a juristic reason for it."

Finally, Gillese upheld the trial judge's determination that, even if the plan members had an interest in the actuarial surplus, that interest was extinguished by Bill C-78. She held that "the purpose and intent of enacting the changes to the Superannuation Acts in 2000 through Bill C-78 was to authorize the Government to debit amounts from the Superannuation Accounts that were in excess of its liabilities under the Plans…. Absent a constitutional restriction on Parliament's right to enact those provisions, the meaning and effect of those provisions must prevail."

Issue(s): The issues before the Supreme Court of Canada include: (1) whether a government employer owes a fiduciary duty to plan members in respect of the contributions they are statutorily required to make for pension purposes in circumstances where: (i) the government is not subject to pension oversight legislation; (ii) the matter of pensions is not subject to collective bargaining; and (iii) the use of surplus causes the employees' contribution rates to significantly increase; (2) whether a constructive trust should be ordered where a government employer enriches itself (in paying down its debt) by using the surplus to the detriment of its employees (in causing their contribution rates substantially to increase) whose contributions are responsible for a significant portion of the surplus; and (3) whether a government employer can extinguish or expropriate through legislation the plan members' legal or equitable interest in the surplus.
 
Status: The Supreme Court of Canada granted leave to appeal on May 5, 2011.

Lancaster Reference: For analysis of the Ontario Court of Appeal's decision, see Lancaster's Pension and Benefit Law eNewsletter, April 12, 2011, Issue No. 94.