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Contribution holidays and surplus

In Telecommunication Employees Association of Manitoba Inc. et al. vs. Manitoba Telecom Services Inc. et al., dated February 10, 2012, the Manitoba Court of Appeal reversed a decision that had ordered an employer to repay $43M to a pension fund. The dispute between the plan members and the employer, Manitoba Telecom Services, occurred after a public service pension plan was replaced by a private plan when the utility was privatized in 1997. Following the transfer, the employer took contribution holidays for several years, and the members objected.

In reversing the trial award, the appeal court rejected the trial judge’s conclusion that the contribution holidays were a wrongful taking of surplus to which the members were entitled because of the promise of benefits "equivalent in value." The appeal court restricted the interpretation of benefits "equivalent in value" to mean only a member’s monthly defined benefit pension, without consideration of surplus entitlement. It deemed that the trial judge had made an error in considering the actuarial surplus before it "crystallized", since the asset transfer from the public to the private plan was not a termination under which surplus would crystallize. Finally, the appeal court rejected the trial judge’s view of member expectations.