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Variation of Pension Trusts

Where all beneficiaries of a trust are of age, and account for all absolute and contingent interests in the trust property, they can require the trustee to wind up the trust and convey the trust property to them. This is known as The Rule in Saunders v Vautier, (1841), 49 ER 282. Obviously the trustee must still pass his or her accounts and be allowed to take compensation, and, equally obviously, a discretionary trust removes the right of the beneficiaries to wind up the trust as they by definition cannot account for all interests.

Where the beneficiaries are not of age or unascertained, the court can consent for them pursuant to the Variation of Trusts Act, R.S.O. 1990, Chapter V.1.

A recent case deal with pension trusts and the jurisdiction of the court to vary. Pensions law is complicated given the intersection of trusts doctrine with regulation.

In Kidd v. Canada Life Assurance Co., 2010 ONSC 1097, a class action was brought after a company was taken over and some staff terminated. There was a partial wind-up of the pension plan. Two employees instituted the class action and made claims in respect of the surplus from the management of the wind-up and for repayment of certain contributions made to the plans. A settlement is proposed but requires consent on behalf of two classes of potential beneficiaries, spouses of active and deferred vested members of the plan who have not yet begun to receive benefits, and, spouses of retired plan members where the pension is not being paid on a joint-and-survivor basis and the spouse does not otherwise have a pension entitlement pursuant to a domestic contract or Court order or a beneficiary designation made by the plan member. Can the Court allow for the variation of the trust as a matter of law?

In an excellent and economical statement of the issue and the relevant authority, Perell J stated:

  1. In Buschau v. Rogers Communications Inc., (2006), 269 D.L.R. (4th) 1 (S.C.C.), for a majority of the Supreme Court of Canada, Justice Deschamps held that pension plan members could not move to terminate a pension plan trust by invoking the rule in Saunders v. Vautier. However, the parties' position in the case at bar is that this holding does not prevent the parties in the circumstances of this case from seeking to vary the terms of a pension trust and that the ruling of the Buschau judgment was only that the rule in Saunders v. Vautier was not applicable in the circumstances of the Buschau case.
  2. In Buschau, Deschamps J. explained that the rule from Saunders v. Vautier was not “easily incorporated into the context of employment pension plans” for four reasons: (1) the rule was displaced by legislation regulating the termination of a registered pension plan and the distribution of assets in the fund; (2) a pension fund trust was connected to a pension plan and was “indissociable” from it, and, thus, the trust could not be collapsed with regard to the pension plan; (3) the rule did not take into account the legitimate interest of the employer in the continuation of the pension plan which was an element of how employers compensate their workforce; and (4) the trust funds of an employee pension plan support the social purpose of preserving the financial security of employees in their retirement by providing periodic payments until the employee dies.
  3. In the case at bar, the parties to the proposed settlement argue that their proposed settlement is a different situation from that in Buschau.
  4. Addressing each of the impediments to the application of Saunders v. Vautier mentioned by Justice Deschamps in Buschau, the settling parties submit that: (1) the statutory regime is not comprehensive and will not be displaced because the creation of the sub-trust will be subject to regulatory approval; (2) although the sub-trust and the Pension Plan are indissociable, in the case at bar, the proposed variation of the trust will not disturb the relationship between the trust and the pension plan and, in contrast to the situation in Buschau, the pension plan is not being terminated; (3) the legitimate interests of the employer (Canada Life) are not being ignored and, indeed, it is the sponsor of the proposed variation of the trust; and (4) the proposed variation does not disturb and is consistent with the social purposes of trust funds associated with pension plans.
  5. The position of the parties is that Buschau does not absolutely preclude the application of the rule in Saunders v. Vautier to pension trusts. I am not asked to rule on this point, but I note that at para. 33 of Buschau Justice Deschamps stated that the rule from Saunders v. Vautier might apply to very small pension plans. I note also that in Aegon Canada Inc. v. Abdool (S.C.J.) (unreported, January 8, 2008), Justice Low granted an application declaring that a pension trust fund had been varied in accordance with the rule in Saunders v. Vautier and approving the variation on behalf of certain categories of beneficiaries under the Variation of Trusts Act.
  6. With this background, I come to the question that is now before the court, which concerns the court's jurisdiction under the Variation of Trusts Act in the circumstances of this case to consent to a variation of trust on behalf of certain spouses of members of the Pension Plan.

Thereafter, Perell J simply examined the plan and the types of interests and concluded that, aside from vested interests that are ascertained and not deferred and where the entitled person could consent on their own behalf, the Court could invoke its jurisdiction on behalf of the class of contingent interests. One technical point is really interesting - the position of a spouse of an incapable member of the plan who is a beneficiary in the Will:

  1. The next and last situation to consider is the situation of a spouse who is a beneficiary in a last will and testament before the testator or testatrix dies but there is no designation of the spouse as a beneficiary under the pension plan and no Family Law Act order.
  2. Before a last will and testament becomes operational, the interests of a beneficiary under the will are a spes successionis or an expectancy: Wolfson Estate v. Wolfson (2005), 22 E.T.R. (3d) 255 (Ont. S.C.J.) at paras. 29-32; Del Grande (Litigation Guardian of) v. Sebastian (1999), 27 E.T.R. (2d) 295 (Ont. S.C.J.) at para. 16. Similarly, a person with a statutory right of inheritance in the event that another person dies intestate has a spes successionis, only a hope (not even an expectation) as long as the other person is alive: Re Purpur (1984), 15 D.L.R. (4th) 469 (Man. C.A.) at p. 474.
  3. However, a potential beneficiary under a living person's will does have an interest before the testator's or testatrix's death where the testator or testatrix, although still alive, no longer has the mental competence to change his or her will: Weinstein v. Weinstein (Litigation Guardian of) (1997), 19 E.T.R. (2d) 52 (Ont. Gen. Div.) at para. 12; Nystrom v. Nystrom (2006), 25 E.T.R. (3d) 297 (Ont. S.CJ.) at paras. 17-19.
  4. Therefore, a beneficiary of a living Pension Plan member's potential estate has a mere expectancy in that estate unless the member has lost the mental competence to create a will or to change an existing will.

A very nice judgement indeed.

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