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News



March 28, 2012
Supreme Court to rule on public service pension surplus

The Supreme Court of Canada has agreed to hear a case that will decide who has the right to control and access pension surpluses: employers or pension plan members and their representatives.

At stake:  the $30 billion surplus of the federal public service, Royal Canadian Mounted Police (RCMP) and military pension plans.
The case dates to 1999 when the federal government passed bill C-78, effectively allowing it to appropriate the accumulated surplus in the three public service pension plans to pay down the federal deficit.

The government’s action was opposed by 18 different public service unions, associations and allied groups who initiated court action to either prevent the appropriation or, at least, receive recognition for the 42 per cent “equitable interest” the employees have in the surplus as a result of their contributions to the three major pension plans.

Earlier litigation efforts by the unions were overruled by the Ontario Superior Court and, in 2010, by Ontario Court of Appeal, which said that the federal employees were not entitled to any of the plans’ accumulated surpluses.

In their submissions, the federal employees’ unions argue that the government violated its fiduciary duty by using the surplus funds for a purpose that was not in the best interests of the federal public sector employees and retirees.  The government action also violated the terms of the public sector workers’ contract, the employee representatives say.

In contrast, the federal government maintains that the surpluses amounted to nothing more than “legislated ledgers” that tracked contributions and deductions from a general account that ultimately fed into the government’s consolidated revenue fund.  Since the surplus did not contain or invest in equities, properties, savings vehicles or other securities, there were no hard assets requiring traditional fiduciary governance.  In other words, the surplus was nothing more than an accounting entry in the overall government ledger.

With more than 700,000 public servants and retirees dependent on the three federal pensions in question, the Supreme Court’s ultimate ruling will be felt from coast to coast.

Politically, the ruling will come at a difficult time for both the government and the union groups.  With so much attention now being focused on the generous benefits provided by the public service defined benefits pension plans, the union groups may find it difficult to position their case when many less generous private sector pension plans are facing severe financial strain.

On the other hand, the government could find itself in a position where it appears to be attacking the country’s largest public pension plans at a time when it is trying to position itself as a defender of such plans.  In addition, many members of the current government, including eight key cabinet ministers, went on record as strongly opposing the government’s appropriation of the pension surplus when they sat in the House of Commons as members of the opposition.

Complicating the problem: should the government be required to return the
$30 billion to the three pension plans, it would face a substantial liability at a time when it is attempting to cut expenses and reduce its debt.

The Supreme Court will hear arguments from both sides from March through to mid-May 2012.

A decision is not expected until late 2012 or early 2013.

Groups opposing the pension surplus appropriation
• Association of Canadian Financial Officers
• Canadian Air Traffic Control Association (CAW Local 5454)
• Canadian Association of Professional Employees, Canadian Auto Workers (Local 2182)
• Canadian Federal Pilots Association
• Canadian Merchant Service Guild
• Canadian Military Colleges Faculty Association
• Communications, Energy and Paperworkers Union of Canada
• Federal Dockyard Chargehands Association
• Federal Government Dockyard Trades and Labour Council (East)
• Federal Government Dockyard Trades and Labour Council (West)
• Federal Superannuates National Association
• International Brotherhood of Electrical Workers (Local 2228)
• Professional Association of Foreign Service Officers
• Professional Institute of the Public Service of Canada
• Public Service Alliance of Canada
• Research Council Employees’ Association
• Union of Canadian Correctional Officers

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