Judge rules public service workers aren't entitled to $30-billion pension surplus

KATHRYN MAY, Ottawa Citizen

Published: Tuesday, November 20, 2007

An Ontario Supreme Court judge ruled Tuesday that 700,000 public servants, military and RCMP personnel aren't entitled to any of the $30-billion surplus in their pension plans that has been at the centre of a historic legal battle for more than a decade.

Justice de Lobe Panet dealt a devastating blow to the 18 unions and pensioners' groups that had accused the government of "stealing" their pension surplus and turned to the courts to force it to put it back into their accounts.

In a 102-page ruling, the judge rejected their claims and largely accepted the government's argument that the $30 billion at the centre of the dispute is not a real "surplus" of cash or assets, but rather an accounting device to record or monitor the government's liabilities. The years the surplus exploded showed the government had over-recorded the liabilities it would have to pay in future pensions.

Michele Demers (L), President of the Professional Institute of the Public Service of Canada and John Gordon, National President of the Public Service Alliance of Canada were present at the resumption of the PSAC and PIPSC vs. The Federal Government trial involving the pension surplus grab of $30 billion by the Federal Government. The trial is expected to last six weeks.The ruling comes at a time when pensions are top of mind for thousands of baby boomers who are retiring from the public service in record numbers over the next decade. Some predict the ruling, which suggests the government can do whatever it likes with the pension plan, will prompt a campaign among workers to gain more control over their pension plans.

Judge Panet concluded that the pension accounts weren't "funded" with real assets and the unions failed to prove the accounts had the key characteristics of a trust fund. With no trust fund, the government couldn't have breached its "fiduciary" obligations, as the unions argued, when it amortized the surplus and used it to offset the deficit between 1990 and 2000.

Even if the unions and pensioners had an interest in the surplus, Judge Panet said the government had the legal authority to take it all when it passed Bill C-78, the legislation that allowed the government in 1999 to claim the surplus and book it against the debt. The bill also created a new pension fund that is now invested in the market. The unions had argued that Parliament didn't intend for the government to take the whole surplus, but Judge Panet said Parliament's intent was "clear and unambiguous."

The ruling also dismissed the unions' claims that the provisions of the bill that allowed the government to take the surplus violated the Charter.

The unions and pensioners had long argued they were entitled to at least a portion of the surplus, which was partly built out of their contributions and the interest paid on those premiums.

The government had countered that the pension accounts were simply "ledger sheets" and that the contributions and interest that went into them were merely bookkeeping entries to keep Parliament informed of the cost of providing pensions to workers. It argued there were no investments, bonds, real estate or other assets in the accounts and all the government owed was its "promise" to pay pensions to all retirees.

"I have found that members of three superannuation plans ... have no equitable interest in the accounts," the judge wrote. "The claims for breach of trust, for breach of fiduciary duty, and that the (government) breached its obligations to members under the three acts by amortizing the surplus are dismissed."

The case, which went to trial last February, was one of the biggest the government has faced and the stakes were huge. If the unions were successful, Canadians could have faced billions of dollars added to the country's national debt.

Some argue the decision could set the stage for a protracted battle between the government and its unions over the future of its pension plan. One of the largest federal unions has already threatened to take the government to court over the right to negotiate pensions at the bargaining table.  The Professional Institute of the Public Service of Canada, one of the unions involved in the lawsuit, is prepared to challenge the constitutionality of laws that for 40 years have forbidden public servants from bargaining pensions.

The government does not allow unions to bargain pensions, staffing or job classifications on behalf of their members. The federal pension plan, among the biggest in the world, is managed by the government, which determines benefits.

PIPSC president Michele Demers said the decision hardens the union's resolve to get pensions on the bargaining table. She said the union is reviewing Judge Panet's decision and is consulting with other unions and pensioners' groups about  whether to appeal. Unions have long been braced for this battle to end up in the Supreme Court.

"The federal government is the only jurisdiction where unilaterally taking the surplus is legally possible, but so morally and ethically wrong," said Ms. Demers.  

Ms. Demers said a recent Supreme Court decision that ruled collective bargaining is a right protected by the Charter has paved the way for a challenge to the Public Service Labour Relations Act, which forbids the bargaining of pensions.

Many have predicted that the ruling could change the face of labour relations in the public sector.

In a case that pitted health unions against British Columbia's labour legislation, the high court threw out sections of a law that essentially allowed the government to tear up union contracts and lay off 8,000 health workers. The province also later imposed a pay cut on other workers.

"Our members should not be robbed of their pension. We will make sure this never happens again," Ms. Demers added. "The Supreme Court in the B.C. health services decision opened the door to include pensions in the collective bargaining process. We are taking this issue to the bargaining table to make sure our members' rights are never trampled on again," said Ms. Demers.

John Gordon, president of the giant Public Service Alliance of Canada, said he was profoundly disappointed by such a "harsh ruling," but he's not sure his union is ready to follow PIPSC's lead to try to negotiate a new pension deal.

"I'm not sure we're on side with that at this point," said Mr. Gordon. "The issue of pensions and dealing with the public service superannuation act is very complex and trying to get that on the table could be difficult."

© Ottawa Citizen 2007