Quebec Court Allows Pension Committee Suit
By: Natalie Bussière
The Québec Superior Court has allowed two class actions suits to proceed against members of a pension committee, the pension fund administrator, and the plans’ actuaries. Natalie Bussière, of Blake, Cassels & Graydon LLP, looks at the circumstances behind these legal actions.
On January 23, 2006, the Québec Superior Court authorized two former members of the hourly and salaried pension plans of Mine Jeffrey Inc. (Mine Jeffrey) to institute two class actions against the members of the pension committees of each pension plan, the administrator of the pension funds, and the actuaries of the plans. This is the first instance where members of a plan have been allowed to proceed with a legal action against members of a pension committee.
The former members who filed the petitions allege that the pension committees, the administrator of the pension funds, and the actuaries modified or participated in the changes made to the investment policies of the plans which allowed for a greater part of the funds to be invested in high risk investment. Such modifications were not in the best interests of the members and beneficiaries of the plans, according to the former members, given the circumstances that prevailed at the time.
The facts alleged in the petitions are that Mine Jeffrey sponsored two pension plans – one for salaried employees and one for hourly employees.
During the mid-1990s, Mine Jeffrey realized that the existing mine’s asbestos reserves would be depleted around the year 2000. Further reserves of asbestos were available, but major investments were required in order to gain access to such resources.
In the fall of 1996, Mine Jeffrey began constructing the infrastructure to operate the underground mine needed for the exploitation of the additional asbestos reserves. However, annual asbestos sales declined between 1996 and 2001 and the average price of a ton of asbestos fell from $474 to $391.
The Asian financial crisis of 1997 and the international campaign against the use of asbestos only made matters worse.
Major layoffs took place at Mine Jeffrey in 1998 and 1999. The company’s financial situation further declined in 2001 and 2002 and, in October 2002, Mine Jeffrey ceased paying special contributions required to fund the actuarial deficit of the pension plans. In February 2003, the plans’ sponsor, Mine Jeffrey, ceased paying contributions for the current service. The termination of the pension plans resulted from Mine Jeffrey’s decision to cease to contribute to the pension plans.
According to the facts alleged in the motions filed before the Superior Court and reported in the court’s decision, the investment policies in force in 1999 for each pension plan provided that 10 per cent of the pension funds would be kept in liquidity or short-term investment; 45 per cent would be invested in the stock market; and 45 per cent in bonds. In September 1999, the investment policies were revised to provide for 55 per cent of the pension funds to be invested in the stock market. Further changes were made to investment policies in October 2000. However, the percentage of the funds to be invested in the stock market was not modified.
In October 2002, the pension committees further modified the investment policies and reduced the percentage of the pension funds to be invested in the stock market. Petitioners allege that the members of the pension committees and both the administrator of the pension funds and the actuaries of the plans participated in all these changes made to the investment policies.
The petitioners allege that between December 1998 and January 2003, between 44.7 per cent and 73 per cent of the pension funds were invested in the stock market. In their opinion, this investment strategy was not in the best interest of the members of the pension plans.
Both pension plans presented a major deficit when they were terminated. For the salaried pension plan, the solvency deficit was established at 36.57 per cent. The court’s decision does not refer to the deficit of the hourly pension plan, however, the comments made further to the plans’ termination indicate that the hourly plan was also showing a major deficit. The petitioners allege that the members of the pension committees, the administrator of the pension funds, and the actuaries of the plans are responsible for a portion of these deficits.
At this stage in the proceedings, the court did not render a decision based on the merits, it simply stated that the conditions to institute a class action in Québec were fulfilled and that such class actions could, accordingly, proceed.
Although the court acknowledges that the petitions filed raise serious issues and legal questions, it did not declare, at this stage, that the defendants failed to fulfil their legal obligations, nor did it discuss the scope of such obligations.
The petitions filed by the former members of the Mine Jeffrey pension plans were the first against members of a pension committee. As such, it will be interesting to follow closely any further developments regarding these petitions as the court will provide very interesting guidelines on the scope of the obligations of members of a pension plan committee.
Natalie Bussière is with Blake, Cassels & Graydon LLP.
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