CANADA - The Supreme Court of Canada has ruled food maker Kerry Inc. can use the surpluses from its defined benefit (DB) scheme to pay pension expenses and contributions into its defined contribution (DC) scheme.
In a ruling on Friday, the court overturned an appeal by former employees saying the company should not be able to tap into the DB plan to cover expenses and meet the needs of the DC plan.
Law firm Fasken Martineau, which represented Kerry, called the ruling a "landmark decision".
"This decision will have a significant impact on the actions of employers in managing employee pension plans," said Fasken Martineau partner Peggy McCallum.
Kerry has offered a defined contribution plan since 1954. In 1985 the firm amended its plan documents to allow plan expenses, like actuarial and management fees, to be paid directly from the pension fund. Between 1985 and 2002, Kerry used C$850,000 (US$786,444) to cover these expenses, according to court documents.
Also in 1985, the firm began taking contribution holidays that by 2001 were worth C$1.5m. A previous ruling in 2007 by the Ontario Court of Appeals said the company was entitled to take a contribution holiday if the defined benefit scheme was over funded.
The DC scheme was introduced in 2000.
The ruling said: "Their (DB plan participants) interest in the surplus is only to the extent that it cannot be withdrawn or misused...They have no right to require surplus funding of the plan in order to increase their security."
In a dissent, justice Louis LeBel wrote: "The company's use of DB surplus to fund its obligations toward the DC plan is not supported by the legislative regime and constitutes a breach of the plan provisions, the trust agreement, and the relevant principles of trust law.
LeBel added: "When the DC plan was created in 2000, the Company's employees ceased to be members of a single plan, and the employees in the DC plan were not beneficiaries of the DB trust."
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