Mar. 22, 2001. 12:37 AM

Court ruling on pension surplus may bankrupt some companies

By James Daw

MONEY TALK

THE HOT POTATO of pension surplus is back in government's lap. Thousands of Ontario workers laid off over many years could now be legally eligible for payments that one pension lawyer says would bankrupt some employers.

Yet these workers might never see a cent if companies resist. A new court decision that will prove a gold mine for lawyers and actuaries could well pit unions and companies against former employees, province against province and the private sector against bureaucrats.

It's the godzilla of pension cases,'' said Randy Bauslaugh, lawyer for the Association of Canadian Pension Management (ACPM). ``They have created a monster.'' Three judges of the Superior Court of Justice, Divisional Court, have overruled last year's tribunal decision that would have spared Monsanto Canada Inc. from a new interpretation of existing law.

Provincial regulators decided in 1977 that the same rules for sharing pension surplus should apply whether a pension plan is partially or fully wound up. Companies have been required to strike a deal with plan members before withdrawing surplus funds since the furor in the 1980s over an attempt to withdraw a pension surplus at Dominion Stores.

Monsanto objected to the new interpretation affecting partial wind-ups and it became a test case, with ramifications for numerous other companies that have had mass layoffs.

The chemical giant won the day before the province's Financial Services Tribunal, but the superintendent of financial services appealed to the Divisional Court and won.

Lawyers for former employees of National Trust backed the Regulators could now require Monsanto to equitably share a $14.3 million pension surplus with 146 employees let go in 1997 and 1998, not just 45 as it had planned.

Spokesperson Adele Pelland said yesterday that Monsanto had just received the decision, released this week, and is still evaluating the implications.

The company, or the lobby group representing pension sponsors and managers, has a couple of weeks to seek leave to appeal the decision.

Pension industry advisers warn that more than 160 companies that had mass layoffs since 1992 - and untold numbers before – could theoretically be asked to divide any pension surplus that existed at the time of a

mass layoff.

Bauslaugh said he has at least one client that would be forced into bankruptcy if it had to make payments.

A surplus that existed when the company closed a factory is now gone.

In the case of the bankruptcy of a plan sponsor, a provincial guarantee fund might have to pump in additional funds.

`We are concerned about the havoc that will be wreaked on industry,'' said Douglas Andrew, president of the Ontario council of the ACPM.

``There are hundreds of partial wind-ups in Ontario that could now be reopened.''

Ontario is one of a handful of provinces that forces employers to partially wind up pension plans and pay enhanced benefits to long-service employees at the time of a mass layoff. Until now, companies have not been required to calculate and share any surplus.

(The current government excused itself from the partial-windup rules when it ordered mass layoffs, however.)

Andrew said his group has already approached new Ontario Finance Minister James Flaherty to request a clarification of the law. Legislation does not say how to calculate surplus when a plan will continue, how to allocate funds, or how disputes will be resolved, said Bauslaugh, a lawyer with the firm Blake Cassels & Graydon.

So there is the potential for a long list of battles: Actuaries will argue over the size of a surplus and when it should be calculated if a layoff spreads over several years.

There could be challenges over how much surplus to allocate to the people leaving, brought by continuing members. Quebec, which does not allow partial wind-ups, could jump into the fray. Companies may stop volunteering to do a partial wind-up and force the superintendent to take action.

Employers who don't want to share surplus could drag out the process by making unreasonable offers - $1 this year, $2 next year.

Lawyer Mark Zigler, who has represented a number of employee groups, is skeptical about many of the objections employers raise to the superintendent's ruling. ``This has implications for a lot of employees terminated from employment,'' Zigler said.

``These are (the ones) who are out of the pension plan and don't have the opportunity to improve their benefits,'' Zigler added.