Pension Plan for Alexander Metal Products (1965) Limited - May 11, 2006

IN THE MATTER OF the Pension Benefits Act, R.S.O. 1990, c. P.8, as amended (the “Act”);

AND IN THE MATTER OF an Application under subsection 78(1) of the Act submitted by Alexander Metal Products (1965) Limited in respect of the Pension Plan for Employees of Alexander Metal Products (1965) Limited, Registration Number 533273;

AND IN THE MATTER OF a Proposal to Require a New Report by the Superintendent of Financial Services under section 88 of the Act in respect of the Pension Plan for Employees of Alexander Metal Products (1965) Limited, Registration Number 533273 (the “Plan”).

TO:

Alexander Metal Products (1965) Limited
Employer and Administrator of the Plan


AND TO:

c/o Low, Murchison LLP
Barristers and Solicitors
200 - 441 MacLaren St.
Ottawa, Ontario, Canada
K2P 2H3

Attention:

Daniel Scott
Lawyers for the Employer and Administrator

ORDER

ON or about July 14th, 2005, the Superintendent of Financial Services issued a
Notice of Proposal to:

REFUSE TO CONSENT, pursuant to subsection 78(1) of the Act, to the application for the withdrawal of surplus dated December 12, 2003 (“Surplus Application”), submitted by Alexander Metal Products (1965) Limited, (the “Employer”) for the payment of surplus on the wind up of the Plan to the Employer, and

ALSO TO REQUIRE a new wind up report to be prepared and filed which shall deal with the distribution of surplus related to the wind up of the Plan effective October 31, 2002, pursuant to sections 70 and 88 of the Act.

NO REQUEST for a hearing has been received by the Financial Services Tribunal in connection with this matter.

I THEREFORE REFUSE TO CONSENT, pursuant to subsection 78(1) of the Act, to the Surplus Application, submitted by the Employer, for the payment of surplus on the wind up of the Plan to the Employer, and

I ALSO REQUIRE a new wind up report to be prepared and filed which shall deal with the distribution of surplus related to the wind up of the Plan effective October 31, 2002, pursuant to sections 70 and 88 of the Act.

REASONS

  1. The Employer is the employer and administrator of the Plan. The Plan is a defined contribution pension plan.

  2. The Employer submitted the Surplus Application on the basis that the Plan is being wound up. The Employer previously submitted a wind up report dated June 25, 2003 (“Wind up Report”), which was approved by FSCO July 4, 2003. The Wind up Report showed that there was no surplus in the Plan, and therefore did not provide for the payment of surplus.

  3. In support of the Surplus Application the Employer attached a copy of a letter dated November 27, 2003 from Manulife Financial to Low Murchison LLP, solicitors for the Employer, which states that there is surplus in the Plan as at October 2003 in the amount of $99,048.20. The letter also states that this surplus arose from the conversion of a prior defined benefit plan to a money purchase plan.

  4. By letter dated May 21, 2004, FSCO informed the solicitors for the Employer that staff had reviewed the Surplus Applications, and it had several concerns:

    1. The Wind up Report submitted did not show that the plan has a surplus. It showed assets equal liabilities and that surplus was $0.00.;

    2. The notices to members did not set out the following:

      1. Methodology used to determine the surplus attributable to employee and employer contributions;

      2. There was no full and complete disclosure of all provisions of the plan and trust documents from the inception of the plan that may be relevant in determining entitlement to surplus on wind up. This includes the provisions in all current and prior plan texts, trusts agreements, insurance contracts, and other documents that may be relevant;

      3. It did not state that members, former members, or other affected persons may wish to obtain independent legal advice with respect to the Surplus Application and the proposed distribution agreement before they give any consent.

    3. The Surplus Application indicates at page four under the heading “Conditions Precedent to a Proposal to Consent” that “The Plan documentation does not make reference to the payment of any surplus”; and

    4. The Employer has not obtained the consent of at least two-thirds of the former members to the refund of surplus to the Employer. The Employer provided waivers signed by members in 1990, which were signed prior to the Surplus Application.

  5. The solicitors for the Employer were advised by FSCO in the letter dated May 21, 2004, that the Surplus Application does not satisfy the requirements of the Act, Regulations and conditions set out in FSCO Policy. The employer was given specific information on the areas of non-compliance. The employer was also advised that failure to adequately demonstrate compliance may result in a refusal of the application.

  6. In response to the May 21, 2004 letter from FSCO, the solicitors for the Employer by letter dated June 22, 2004 indicated that the letter from Manulife confirmed that there is surplus in the Plan. However, no new or revised wind up report was submitted in support of this position. The solicitors for the Employer also indicated that members already received the pension benefits that they bargained for in their employment agreement, and that the surplus arose entirely due to the employer’s over contribution to the previous plan.

  7. Subsection 79(3) of the Act provides in part that the Superintendent shall not consent to an application by an employer in respect of surplus in a pension plan that is being wound up in whole or in part unless: (a) he is satisfied, based on reports provided with the application, that the pension plan has a surplus; (b) the pension plan provides for the payment of surplus to the employer on the wind up of the plan; (c) the applicant and the pension plan comply with all the other requirements prescribed under other section of the Act in respect of the payment of surplus out of a pension fund.

  8. Clause 8(1)(b) of Regulation 909, R.R.O. 1990, as amended (“the Regulations”) provides that no payment may be made from the surplus out of a pension plan that is being wound up in whole or in part unless the payment is to be made with the written agreement of: (i) the employer, (ii) if there is no collective bargaining agent of the plan, at least two-thirds of the members of the plan; and (iii) such number of former members and other persons who are entitled to the payment under the plan on the date of the wind up of the plan as the Superintendent considers appropriate in the circumstances.

  9. The Financial Services Commission of Ontario’s (“FSCO”) Policy No. S900-510 sets out the requirements for written agreements, pursuant to clause 8(1)(b) of the Regulations. It provides at section 19 that the Superintendent must be satisfied that the employer has provided the former members and other persons who are not currently represented by independent legal counsel with a reasonable opportunity to obtain independent legal advice with respect to the Surplus Application, and the employer has obtained the number of executed agreements required from affected members and others under the regulations.

  10. In respect of the level of consent, section 23 of FSCO Policy No. 5900-510 provides that in order to satisfy subclause 8(1)(b)(iii) of the Regulations, an applicant should obtain the written agreements of at least two-thirds of the aggregate of those former members and other persons entitled to payments under the pension plan at the date of wind up.

  11. Subsection 28(5) of the Regulations sets out the requirements of the notice of application, required under subsection 78(2) of the Act, for the payment of money that is surplus to the employer out of a pension plan. Specifically subsection 28(5)(c) provides that the notice shall contain the surplus attributable to the employee and employer’s contributions and subsection 28(5)(f) requires that the notice must set out the contractual authority for surplus reversion.

  12. FSCO Policy S900-600 section 9, provides that with respect to clause 28(5)(f) of the Regulations, there must be full and complete disclosure of all provisions of the plan and trust documentation from the inception, that may be relevant in determining entitlement to the payment of surplus on wind up, including provisions in all current and prior plan texts, trust agreements, insurance contracts, employee booklets, employee notices and any other documents that may be relevant.

  13. Section 9 of FSCO Policy S900-600 also provides in part that the actual wording of all the provisions from the plan and trust documentation from the inception of the plan that may be relevant to surplus entitlement and to the question of authority to make the plan amendments must be cited in the Surplus Notice, along with the full analysis of their implications.

  14. The notice of application provided by the Employer to former members and other persons entitled to benefits under the Plan does not contain any reference to the provisions of the current Plan, prior plans or any other document that may be relevant. Further it does not set out the surplus attributable to employee and employer contributions, the contractual authority for surplus reversion, nor does it state that the former members or other affected persons may wish to obtain independent legal advice with respect to the Surplus Application and the surplus distribution agreement before they give any consent. Therefore, the Employer has not demonstrated that it has complied with subsection 78(2) of the Act and subsection 28(5) of the Regulations.

  15. The consents from the former members of the Plan indicate that a surplus exists and grants approval for the withdrawal of said surplus for credit to the Employer. These consents are dated October 31, 1990, and predate the wind up of the Plan. Therefore, the Employer has not demonstrated that it has complied with sub clause 8(1)(b)(iii) of the Regulation, which requires the agreement of at least two-thirds of the former members of the Plan at the date of the wind up of the Plan.

  16. The Wind up Report showed that there is no surplus in the plan. However, the Employer indicated in the Surplus Application that there is surplus. Section 30(f) of FSCO Policy 900-510 requires that the Surplus Application be accompanied by copies of the title pages and the balance sheet of the Wind up Report as of the effective date of the wind up giving rise to the Surplus Application and the actuary’s certification from the Wind up Report or any supplemental wind up report. It further provides that a supplement to a wind up report will be required if the distribution of surplus is not addressed in the Wind up Report or the initial wind up report does not reflect the surplus distribution proposals outlined in the Surplus Application.

  17. Section 88 of the Act provides that the Superintendent may require an administrator to prepare a new report where the report does not meet the requirements of the Act, and the Superintendent may specify the methods that shall be used in the preparation of the new report.



DATED at Toronto, Ontario, this 11th day of May, 2006.

K. David Gordon

Deputy Superintendent, Pensions

 
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