IN THE MATTER OF the Pension Benefits Act R.S.O. 1990, c. P.8, as amended (the “Act”);
AND IN THE MATTER OF a Notice of Proposal issued by the Superintendent of Financial Services to the Administrator of the Stelpipe Ltd. Retirement Plan for Salaried Employees, Registration No. 1017177, under section 40(2) of the Act.
386 Wilcox Street
P.O. Box 2030
Hamilton, ON L8N 3T1
Mr. Mario DeMarco
Director, Compensation Services
Hicks Morley Hamilton Stewart Storie LLP
Toronto-Dominion Tower, 30th Floor
Box 371 T-D Centre
Toronto, Ontario M5K 1K8
Ms. Rachel M. Arbour
Attorneys at law for the Administrator of Stelpipe Ltd.
Retirement Plan for Salaried Employees
Mr. Frank Reid
18 Wychwood Road
NOTICE OF PROPOSALS
I PROPOSE TO:
1. ORDER that the administrator of Stelpipe Ltd. Retirement Plan for Salaried Employees Registration No. 1017177 ( the “Stelpipe Plan”) provide Mr. Frank Reid (the “Applicant”) with the difference between the commuted value of his pension benefit which he received from the Stelpipe Plan on or about March 21, 2003 in the amount of $205,595.16, and the revised commuted value amount inclusive of early retirement subsidies of $337,093.26 together with interest from August 4, 2000, the date of termination of the Applicant’s employment, to the date of payment pursuant to section 40(2) of the Act.
REASONS FOR THE PROPOSAL:
- The Applicant’s services were terminated by Stelpipe Ltd. (“the Employer”) on
August 4, 2000. At the time of the termination, the Applicant was 57 years old. The Applicant was a member of the Stelpipe Plan and was offered four options in relation to his pension benefits as a result of the termination of his employment: Option 1 - a deferred monthly benefit; Option 2 - transfer of the commuted value of his pension benefit to a locked-in retirement account; Option 3 - transfer of his benefits to a registered pension plan of a subsequent employer; and Option 4 - transfer of his benefits to an annuity issuer for the purchase of a life annuity. The Applicant elected Option 2.
- The Applicant in his letter to the Employer dated October 27, 2000, enclosing the signed Election of Option Form also dated October 27, 2000, indicated that he was aware that his pension benefits exceeded that which was set out in the Option Form, however, that he was exercising the option in order to comply with a 60 day deadline stipulated by the Employer to elect an option. The commuted value of the Applicant’s deferred monthly pension was valued at $172,643.97 on the Option Form. The Applicant was concerned that if he failed to exercise one of the four options then he would have received, by default, a deferred monthly pension of approximately $2,093.67 per month.
- The Applicant subsequently filed a complaint with the Ontario Human Rights Commission (“Human Rights Complaint”). The complaint was settled. The Minutes of Settlement dated June 28, 2002 (“Minutes of Settlement”) and signed by the Applicant and the Employer, provided for the payment of the sum of $184,966.35 plus interest from June 30, 2001 to the date of the Minutes to be transferred to a financial institution designated by the Applicant and as permitted by law.
- Under the terms of the Minutes of Settlement the sum of $205,595.16, inclusive of interest to the date of payment, was transferred from the Stelpipe Plan to a locked in retirement account designated by the Applicant on or about March 21, 2003.
- The Financial Services Commission of Ontario (“FSCO”) in a letter dated October 18, 2004 to Hicks Morley Hamilton Stewart Storie LLP (“Hicks Morley”), the counsel for the Employer, indicated that the Applicant was also eligible to receive subsidized early retirement benefits at the date of the termination of his employment under section 5 of the Stelpipe Plan as required by section 40(2) of the Act. FSCO requested that the Employer revise the commuted value calculation to include the early retirement subsidies and provide details of the calculations, including all actuarial assumptions used.
- In response to FSCO’s request, Hicks Morley, in their letter dated December 10, 2004 to FSCO, submitted that the Minutes of Settlement executed by both the Applicant and the Employer, in relation to the Human Rights Complaint, sets out the full entitlement of the Applicant. Under clause 1(e) of the Minutes of Settlement, the Applicant accepted as his entitlement to a pension benefit “ the sum of $184,966.35, plus applicable interest from June 30, 2001 to the date of these Minutes, representing the transfer of his pension monies to a locked-in retirement account as per Mr. Reid’s election dated October 27, 2000.”
- Hicks Morley also submitted that under clause 5 of the Minutes of Settlement, the Applicant released the Employer and its successors from any claims in respect of his pension benefits.
- Hicks Morley, in an exhibit to their letter dated December 10, 2004, provided the commuted values of the Applicant’s pension benefit with and without the bridge benefits. The Applicant’s entitlement without the bridge benefit was calculated as $171,881.29 and the commuted value with the bridge benefit was calculated as $337,093.26 as of the date of termination of the Applicant’s employment.
- Hicks Morley submitted in their letter dated December 10, 2004, that under the terms of the Stelpipe Plan, an employee eligible for early retirement is not eligible to receive a commuted value payment. Further, that the Applicant waived his right to early retirement treatment when he sought the Employer’s agreement to pay him a commuted value instead of his pension.
- Section 5 of the Stelpipe Plan provides for an early retirement pension for members who have attained age 55, or who have 30 years or more of credited service. Once a member satisfied this eligibility requirement, the member is entitled to receive an immediate pension payable in equal monthly installments in lieu of a deferred normal pension, together with a bridge benefit under section 5(b) of the Stelpipe Plan.
- At the time the Applicant’s services were terminated, he satisfied the eligibility requirement to exercise the early retirement option under section 5 of the Stelpipe Plan. The Applicant elected to receive the commuted value of his pension benefit; however, the value of the bridge benefit was not included in the calculation of the commuted value.
- Section 40(2) of the Act provides that an ancillary benefit for which a member has met all the eligibility requirements under the pension plan necessary to exercise the right to receive payment of the benefit shall be included in calculating the member’s pension benefit or commuted value of the pension benefit.
- Since the Applicant had satisfied the eligibility requirements under the Stelpipe Plan for the receipt of the early retirement pension together with the bridge benefit, the value of the bridge benefit should have been included in the calculation of the commuted value of the Applicant’s pension benefit.
- Section 5 of the Stelpipe Plan is silent on members’ entitlement to the commuted value of an early retirement pension. Instead the option to elect a commuted value is addressed under section 10(f) of the Stelpipe Plan. Under section 10(f) a deferred annuitant has the option to transfer the commuted value of his deferred annuity to a registered retirement savings account or life income fund as prescribed under the Act.
- When the pension benefit options were offered to the Applicant in the “Election of Option on Termination from Employment” form, the Employer did not indicate under which provisions of the Stelpipe Plan or the Act it was offering these options. Nevertheless the Employer offered the Applicant the option to receive the commuted value of his pension benefit. The Applicant, with reservation, accepted this option and subsequently agreed to the receipt of the commuted value and interest as set out in the Minutes of Settlement.
- Notwithstanding the fact that the Applicant entered into the Minutes of Settlement before the Human Rights Commission, the value of the Applicant’s pension benefits was not calculated in accordance with his entitlement as required by section 40(2) of the Act. Specifically, the value of the Applicant’s bridge benefits was not included in the calculation of his pension benefits as required by section 40(2) of the Act.
- Section 40(2) of the Act sets out a minimum standard for the determination of a plan member’s entitlement to a pension benefit or the commuted value of a pension benefit. A pension plan could provide a benefit in excess of the minimum standards; however, it cannot provide less than is required by the Act. No one can contract out of these minimum standards.
- The value of the Applicant’s pension benefits as set out in the Minutes of Settlement represents an amount that is less than the minimum standard provided under the Act. The Employer is therefore required to transfer to the Applicant’s locked-in account the difference between the commuted value amount set out in the Minutes of Settlement and the amount of the commuted value of the Applicant’s pension taking into account the early retirement subsidies as at the date of termination of the Applicant’s employment.
- Therefore, the Superintendent proposes to order the administrator of the Stelpipe Plan to pay the Applicant the difference between the amount of the pension benefit that was actually transferred on or about March 21, 2003 to the Applicant’s locked-in account in the amount $205,595.16, and the revised commuted value (including the value of the bridge benefit) in the amount of $337,093.26 (which includes available service to September 29, 2000), together with interest from the date of termination of the Applicant’s employment to the date of payment.
- Such further and other reasons as may come to my attention.
YOU ARE ENTITLED TO A HEARING before the Financial Services Tribunal (the “Tribunal”) pursuant to subsection 89(6) of the Act. To request a hearing, you must deliver to the Tribunal a written notice that you require a hearing, within thirty (30) days after this Notice of Proposal is served on you.
YOUR WRITTEN NOTICE must be delivered to:
Financial Services Tribunal
5160 Yonge Street, 14th Floor
North York, Ontario
M2N 6L9 Attention: The Registrar
For further information, contact the Registrar of the Tribunal by phone at 416-226-7752, or toll free at 1-800-668-0128, ext. 7752, or by fax at 416-226-7750.
IF YOU FAIL TO REQUEST A HEARING WITHIN THIRTY (30) DAYS, I MAY MAKE THE ORDER PROPOSED HEREIN.
DATED at Toronto, Ontario, 8th May, 2006.
K. David Gordon Deputy Superintendent, Pensions
*NOTE—PURSUANT to section 112 of the Act any notice, order or other document is sufficiently given, served, or delivered if delivered personally or sent by first class mail and any document sent by first class mail shall be deemed to be given, served, or delivered on the seventh day after mailing.