Summary of PSAC argument in the pension surplus case

November 19, 1999

Facts of the Case

Prior to the passage of the Public Sector Investment Board Act, the Government of Canada was required to credit the Superannuation Account with an amount equal to the amount contributed by its employees. In addition, the Government was required to credit the Superannuation Account with an amount each month to cover the cost of future benefits accrued in respect of pensionable service during the month. The Government has never undertaken the sole risk of funding the benefits. For example, in 1970, when it was projected there would be insufficient assets to provide benefits, mandatory employee contributions were increased through the enactment of the Supplementary Retirement Benefits Act.

Today, the public service, RCMP and Canadian Forces pension plans have developed a combined surplus in the order of 30 billion dollars. A number of factors have contributed to this surplus. In particular, the contributors have been subject to Parliamentary intervention in respect of the terms and conditions of their employment; most notably for pension projection purposes is the impact of a long period of wage freezes. Pension projection assumes contributors will receive annual raises in pay.

Treasury Board acknowledged that it did not have the legal authority to touch the surplus without amending the legislation. The Public Sector Investment Board Act (PSIBA) gives the Government the authority to take ownership of the surplus for its exclusive use without regard to the percentage of the overall fund represented by contributions by its employees. Effectively, the legislation greatly reduces the Government’s share of the cost by shifting the cost to the contributors.

Pursuant to s.95 of the PSIBA, the Government will no longer be required to make contributions at least equal to the contributions required to be made by employees. It continues to have the authority to raise the mandatory employee contributions in the case of shortfall or to reduce or cease employer contributions if the Public Service Pension Fund finds itself in a surplus.

Finally, the Act denies access to the Court or any other decision maker to address disputes regarding the employees’ interest in the surplus.

In a nutshell, it has never been the employees’ understanding that the pension plan was self-funded. It is an employee benefit with an understanding of the joint financial responsibilities of the contributors and the employer. The employer, through legislation, has decided to unilaterally reduce its historic responsibility and pocket the existing surplus.

Legal Argument

As the PSAC membership has learned too often, Parliament can unilaterally control its employees through legislation. In this case, successive governments’ willingness to legislate rather than negotiate may be of assistance.

The PSAC Claim alleges a violation of s.15 of the Canadian Charter of Rights and Freedoms. It states that public service workers are a uniquely disadvantaged group contemplated by s.15 "because their employer, the Government of Canada, has consistently and repeatedly resorted to using its legislative power to unilaterally amend or revoke the terms and conditions of employment of its employees to their detriment. In this case, the Government has not given similar rights to other employers in the federal jurisdiction to unilaterally appropriate a pension surplus without legal authority. Instead, it attacks only federal government employees and perpetuates the stereotypical view that public service workers enjoy undeserved benefits and are therefore less deserving of their legal rights.

Secondly, the provisions of the Act which deny access to the Courts are offensive of the rule of law in Canada and the legitimate rights and expectations of contributors respecting their interests in the fund and its current surplus created, in part, by their contributions.

Thirdly, the PSAC asserts the Government’s action constitutes a breach of contract in that the pension fund is part of the terms and conditions of employment governing public service workers.

Fourthly, the PSAC states that as manager of the fund, the Government has been impressed with a trust and its actions "are subject to a fiduciary obligation to manage and account for the monies in the Plan in a fashion which is in the best interest of the contributors to the Plan. Clearly the Government has preferred its own interests to the complete exclusion of the interests of the contributors.

Finally, the PSAC states that the surplus has arisen from the commingled amounts from the contributors and the employer credited to the Superannuation Account. In turn, the surplus consists, in part, of the workers’ contributions and interest credit. At least, the employees have a pro rata interest in any surplus based on their share of the total contributions.

On November 8, 1999, the PSAC filed its Statement of Claim in the Ontario Superior Court of Justice. No date of hearing has been set.

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