Decision Makes Paying Plan Expenses out of Pension Funds More Difficult

Originally published in The Lawyers Weekly, May 19, 2006.

In its recent decision in Nolan v. Superintendent of Financial Services (Court File Nos. 178/04 and 520/04 (Ont. Div. Ct.), March 15, 2006 [Kerry]), the Ontario Divisional Court overturned parts of a Financial Services Tribunal (FST) decision and made it more difficult for employers to pay plan expenses out of pension funds. The decision also limits the practice by certain pension plan sponsors of hybrid pension plans (plans with both defined benefit and defined contribution components) of using defined benefit plan surplus to fund employer contributions for the defined contribution component.

A pension plan was established pursuant to a trust. The original trust agreement provided that the trust fund could be used only for the exclusive benefit of plan members or their beneficiaries. The agreement also required the employer to pay most expenses incurred by the trustee. The employer did not reserve the power to