2021 NBCA 30, 2021 NBCA 30

COURT OF APPEAL OF COUR D’APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 71-20-CA 78-20-CA THE CITY OF FREDERICTON and SUPERINTENDENT OF PENSIONS APPELLANTS - and - FREDERICTON POLICE ASSOCIATION, LOCAL 911 UNITED BROTHERHOOD OF CARPENTERS AND JOINERS OF AMERICA and FREDERICTON FIRE FIGHTERS ASSOCIATION, INTERNATIONAL ASSOCIATION OF FIRE FIGHTERS, LOCAL 1053 RESPONDENTS The City of Fredericton et al. v. Fredericton Police Association, Local 911 United Brotherhood of Carpenters and Joiners of America et al., 2021 NBCA 30 THE CITY OF FREDERICTON et SURINTENDANTE DES PENSIONS APPELANTES - et - ASSOCIATION DES POLICIERS DE FREDERICTON,

SECTION LOCALE 911, FRATERNITÉ UNIE DES CHARPENTIERS ET MENUISIERS D’AMÉRIQUE et FREDERICTON FIRE FIGHTERS ASSOCIATION, INTERNATIONAL ASSOCIATION OF FIRE FIGHTERS,

SECTION LOCALE 1053 INTIMÉES The City of Fredericton et autre c. Association des policiers de Fredericton,

section locale 911, Fraternité unie des charpentiers et menuisiers d’Amérique et autre, 2021 NBCA 30 CORAM: The Honourable Justice Drapeau The Honourable Justice Quigg The Honourable Justice French CORAM : l’honorable juge Drapeau l’honorable juge Quigg l’honorable juge French Appeal from the decisions of the Financial and Consumer Services Tribunal: December 3, 2019 and August 27, 2020 Appel des décisions du Tribunal des services financiers et des services aux consommateurs : les 3 décembre 2019 et 27 août 2020 History of Case: Historique de la cause : Decisions under appeal: 2019 NBFCST 12 2020 NBFCST 4 Décisions frappées d’appel : 2019 NBFCST 12 2020 NBFCST 4

Preliminary or incidental proceedings: 2020 N.B.J. No. 269 Procédures préliminaires ou accessoires : [2020] A.N.-B. n o 269 Appeal heard: January 21, 2021 Appel entendu : le 21 janvier 2021 Judgment rendered: June 17, 2021 Reasons delivered: October 28, 2021 Jugement rendu : le 17 juin 2021 Motifs déposés : le 28 octobre 2021 Reasons for judgment: The Honourable Justice French Concurred in by: The Honourable Justice Drapeau The Honourable Justice Quigg Counsel at hearing: For The City of Fredericton: Jamie C. Eddy and Jessica R. Bungay For the Superintendent of Pensions: André G.

Richard, Q.C. and Ari Kaplan For the Fredericton Police Association, Local 911, United Brotherhood of Carpenters and Joiners of America: David Andrew Mombourquette For the Fredericton Fire Fighters Association, International Association of Fire Fighters, Local 1053: Sean McManus Motifs de jugement : l’honorable juge French Souscrivent aux motifs : l’honorable juge Drapeau l’honorable juge Quigg Avocats à l’audience : Pour The City of Fredericton : Jamie C. Eddy et Jessica R. Bungay Pour la surintendante des pensions : André G. Richard, c.r., et Ari Kaplan Pour l’Association des policiers de Fredericton,

section locale 911, Fraternité unie des charpentiers et menuisiers d’Amérique : David Andrew Mombourquette Pour la Fredericton Fire Fighters Association, International Association of Fire Fighters,

section locale 1053 : Sean McManus

THE COURT On June 17, 2021, the Court dismissed the appeal with reasons to follow. These reasons are set out in the accompanying text. Each appellant shall pay each respondent costs of $5,000. LA COUR Le 17 juin 2021, la Cour a rejeté l’appel et a indiqué que les motifs suivraient. Ces motifs sont exposés dans le texte qui suit. Chaque appelante devra payer à chaque intimée des dépens de 5 000 $. TABLE OF CONTENTS Paragraph I. Overview A. Introduction B. The Tribunal ’s first decision C. Actions that led to the complaints made by the Unions to the Superintendent D.

Actions expanding the complaints to the Superintendent E. The Superintendent’s decision regarding the complaints F. The Tribunal ’s decision 1 6 9 21 26 27 II. Issues on Appeal III. Background A. The City’s decision to convert the Old Plan to a Shared Risk Plan B. The split of the Old Plan into two plans C. The Tribunal ’s first decision D. Actions leading to the complaints made by the Unions to the Superintendent E. The complaints to the Superintendent 32 33 40 47 55

F. Actions that led to expanding the complaints made to the Superintendent G. The Superintendent’s decision IV. Standard of Review of the Tribunal’s Decisions V. Analysis A. Did the Tribunal apply the wrong standard to the Superintendent’s decision? B. Did the Tribunal err by interpreting s. 75 as not conferring on the Superintendent unrestricted participatory rights in an appeal of her decision? C. Did the Tribunal err in dismissing the City’s objection to the Unions’ claim regarding Mercer on the basis that it was not raised by their appeal of the Superintendent’s decision? D.

Did the Tribunal err in deciding the established facts provided reasonable and probable grounds for the opinion that one or more of the circumstances enumerated in s. 72(2) existed, so as to justify making an order under s. 72(1)?

(1) Did the Tribunal err in finding that Mercer was an agent of the Superannuation Board for the purpose of s. 18(3)?

(2) Did the Tribunal err in applying the “two hats doctrine”?

(3) Did the Tribunal err in concluding s. 72(2)(

h) applied?

(4) Did the Tribunal err in holding the Superintendent had a fiduciary duty to plan members? E. Does s. 72 provide the Tribunal with authority to make the impugned orders? VI. Conclusion 86 88 97 98 100 108 139 145 153 170 182

190 192 195 The judgment of the Court was delivered by FRENCH, J.A. I. Overview A. Introduction [ 1 ] The City of Fredericton and the Superintendent of Pensions appeal decisions of the Financial and Consumer Services Tribunal rendered on December 3, 2019, and August 27, 2020.

Leave to appeal was granted with the consent of the responding parties, Fredericton Police Association and Fredericton Fire Fighters Association (collectively, the “Unions”). [ 2 ] The decisions under appeal are the Tribunal ’s second and third decisions in relation to the defined benefit plan sponsored by the City and administered by the Superannuation Board for its police and fire fighters. A previous decision was rendered in March 2016. [ 3 ] The appeals were dismissed with reasons to follow.

These are the reasons that prompted me to join my colleagues in doing so. [ 4 ] Before 2013, the City maintained a single defined benefit pension plan for its employees (the “Old Plan”). A deficiency that existed for a number of years prompted the City to take steps in 2013 to convert the Old Plan to a shared risk plan. The Unions successfully challenged the proposed change before the Labour and Employment Board.

In response, the City split the Old Plan into two plans : it established a new defined benefit plan for its police and fire fighters (the “Police and Fire Plan ”) and it converted the Old Plan into a shared risk plan for its other employees (the “Shared Risk Plan”).

This occurred as of March 31, 2013. [ 5 ] To determine the value of the assets required to be transferred from the Old Plan to the Police and Fire Plan, the City had Mercer (Canada) Ltd., the actuarial firm for the Old Plan, prepare a “Report on the Actuarial Valuation for Purposes of the Transfer of Assets and Liabilities as at March 31, 2013” (the “Asset Split Report”). This report proposed transferring approximately $37,500,000 from the Old Plan, out of assets of approximately $200,000,000. In other words, about 18.75% of the Old Plan’s assets would be transferred to the Police and Fire Plan.

Mercer used a going concern apportionment methodology to determine the amount to be transferred. The Unions objected to this approach. They maintained it unfairly favoured the Shared Risk Plan since it resulted in an initial funding ratio (the proportion of assets to liabilities) for the Shared Risk Plan of 56.9% and only 47.9% for the Police and Fire Plan. Despite the views of the Unions, in February 2014, the City asked the Superintendent to consent to the Old Plan being apportioned as Mercer proposed.

In November 2014, the Superintendent gave her consent to the proposed split, and the Unions appealed this decision to

the Tribunal . B. The Tribunal ’s first decision [ 6 ] At a hearing in October 2015, the Tribunal heard expert opinion evidence that it would be preferable to use a solvency apportionment methodology as a basis for undertaking the split of the Old Plan. In its March 2016 decision, the Tribunal decided that methodology would be fairer to the members of both plans since it would result in their having the same funding ratio as of the effective date of the split. It set aside the Superintendent’s decision and ordered the Old Plan be split on this basis ( Fredericton Police Association v.

Superintendent of Pensions, 2016 NBFCST 2 (the “ Tribunal ’s first decision”)). [ 7 ] In May 2016, the City sought and obtained leave to appeal the Tribunal ’s decision to this Court. [ 8 ] However, by late 2016, the City decided to abandon its appeal and act on the Tribunal ’s first decision.

Mercer advised the Superintendent of the City’s intentions by letter dated December 20, 2016, and explained that revising its Asset Split Report, using the solvency methodology, would result in the transfer of an additional $5,500,000 (estimated) to the Police and Fire Plan, as of March 31, 2013, thus increasing the plan’s initial value to approximately $43,000,000. C. Actions that led to the complaints made by the Unions to the Superintendent [ 9 ] The City’s decision to implement the split of the Old Plan as directed by the Tribunal was not, in and of itself, contentious.

What became problematic was the City and Mercer’s effort to follow and/or link the $5,500,000 (approx.) increase in the Police and Fire Plan, as of March 31, 2013, with a proposal to (1) retroactively reduce the annual contributions that had been made to the plan since April 1, 2013, and refund the excess; and (2) prospectively reduce the annual contributions to the plan to 9% of pensionable earnings.

Under the Old Plan, the members and the City had each contributed approximately 11% (for a total of 22%) annually, and they both continued to contribute at that level until 2017, when this effort to reduce contributions began. [ 10 ] In its December 2016 letter to the Superintendent, Mercer explained that the $5,500,000 increase to the initial funding of the Police and Fire Plan meant the annual contributions after April 1, 2013, were higher than necessary, and it requested the Superintendent’s preliminary approval for the proposed retroactive reduction and refund of the excess.

While the exact amount to be refunded is not clear from the record, as will be seen, it was estimated that it would be approximately $2,000,000 for the period from 2013 to 2016 and, going forward from 2016, the reduction in contributions would be approximately $700,000 each year thereafter. The assumptions upon which the City and Mercer would later rely to assert the retroactive reduction was necessary and/or justifiable, became contentious.

Indeed, the actions taken by the City and Mercer in 2017 to implement these changes are at the centre of the issues addressed in the decision under appeal to this Court. [ 11 ] Given that “Reports on the Actuarial Valuation for Funding Purposes” had been previously filed with the Superintendent for each of 2013, 2014 and 2015, Mercer advised the Superintendent that, to effect the proposed retroactive reduction in contributions (and the refund), it would be necessary for it to file:

(1) Revised Actuarial Valuation Reports for Funding Purposes for each of 2013, 2014 and 2015 to reflect the increase in the initial value of the plan as of March 31, 2013, and the new, lower contribution amounts that it was proposing for those years; and (2) an amendment to the City’s by-law respecting the Police and Fire Plan to establish (retroactively) the lower contributions for those years.

While Mercer’s letter explained that the plan members would benefit from receiving the expected refund, since they and the City contribute equally to the plan, the City would receive half of any refund. [ 12 ] It is of no small significance that the City’s intention to retroactively reduce contributions from April 2013 (and refund the excess) was not presented by Mercer to the Board of Administrators for the Police and Fire Plan, the plan’s administrator, until March 2017.

It is common ground that retaining and instructing an actuary, including in relation to the filing of annual actuarial valuation reports for contribution purposes, are duties of the plan administrator, not the employer, the plan’s sponsor. That the refund was developed and presented by Mercer on the instructions of the City, not the Board of Administrators (the “Superannuation Board”), fuelled the Unions’ complaints to the Superintendent. These complaints form the basis for this appeal.

In fact, the Unions argued before the Tribunal that “the City was usurping the Superannuation Board’s authority.” As will be explained, the City would later abolish the Superannuation Board as of November 27, 2017, making itself the administrator. [ 13 ] The meeting of the Superannuation Board on March 17, 2017, was an “emergency” or special meeting of the Board called by the City for the purpose of addressing two agenda items: first, an update regarding the split of the Old Plan’s assets, and,

second, Mercer’s recommendations regarding the initial actuarial valuation report for funding purposes for 2016. [ 14 ] In relation to the update on the split of the Old Plan, the Superannuation Board was advised of the City’s intention to abandon its appeal of the Tribunal ’s first decision and to split the Old Plan as directed. Mercer explained this would result in past contributions (made between 2013 and 2015) being higher than necessary, and they would be retroactively reduced to produce a partial refund of contributions to members.

It was acknowledged at the meeting that the City intended to contribute its share of the refund (alleged to be in the range of $1,000,000) to the Shared Risk Plan.

As an alternative to refunding contributions from the plan, Blair Sullivan, a Board member nominated by the Unions, asked about other possibilities, and suggested, instead, a reinstatement of pension indexing, a benefit that had been eliminated in 2014 because of the plan’s deficiency. [ 15 ] In relation to the initial 2016 actuarial valuation report for funding purposes, Mercer proposed that contributions to the plan be reduced to 9% (from approximately 11%), beginning April 2016.

When questioned about this, Mercer explained that it was the maximum rate permitted (without an exemption) by the Canada Revenue Agency (CRA). [ 16 ] While the Superannuation Board initially accepted Mercer’s recommendations, the next day, Mr. Sullivan wrote to the Board’s Chair raising both procedural and substantive concerns with the meeting and Mercer’s presentation. He requested another emergency meeting of the Board. City officials asked Mercer to provide comments on the issues raised by Mr. Sullivan.

In an email sent on March 21, 2017, Mercer made the following comments on these issues: • We are proposing to drop the employee and employer contribution rates from around 11% of pensionable earnings to 9% of pensionable earnings which represents a reduction in annual contributions to the Plan of approximately $700,000 (Blair is correct with this statement). Blair is also correct that it would be preferable not to reduce contributions when the Plan has a large solvency deficit.

However, the solvency deficit has been reduced by $5.5M as a result of the Tribunal decision which equates to about 8 years’ worth of reduced contributions. • In any case, the CRA maximum employee contribution requirements mean that the Plan must restrict employee contributions to 9% of pensionable earnings. […] • […] If the Plan is to remain in its current form, there is a very real and likely possibility that Employer contributions will have to rise at some point in the not too distant future (unless we see a sustained period of good investment returns and/or material increases in Canadian interest rates). • The alternative to higher employer contributions is reductions in future benefits. [Emphasis added.] [ 17 ] As will be seen, whether contributions had to be restricted to 9% or CRA would grant an exemption to permit the continuation of contributions at 11% (or at some other level in excess of 9%) was an issue raised by the Unions in their complaints to the Superintendent and addressed in the decision of the Tribunal that is under appeal.

While Mr. Sullivan’s request for a second “special” meeting was denied, at the Superannuation Board’s next regular meeting, on April 25, 2017, the Board resolved to “overturn” the decisions made at the March 17 th meeting (minutes of Board meeting). The Board also adopted a motion to “obtain actuarial and legal advice independent of the City.” [ 18 ] Despite the Board’s decision to overturn the approval of Mercer’s proposals, at the request of City officials, Mercer presented its recommendations respecting the 2016 valuation report to City Council on May 8, 2017.

Council approved the recommended 6.2% discount rate (the expected rate of return on the plan’s capital) with 0% margin for adverse deviation (the factor used to account for the risk of not achieving the assumed rate of return).

It also approved establishing a contribution rate of 9% and directed Mercer to file the 2016 report with the Superintendent. [ 19 ] Disregarding the Superannuation Board’s April 25, 2017, decision and without securing further approval from the Board, on July 11, 2017, Mercer filed with the Superintendent: (1) the revised Asset Split Report, as of March 31, 2013; (2) revised actuarial valuation reports for funding purposes for each of 2013, 2014 and 2015; and (3) an initial actuarial valuation report for 2016. At

the same time, the City amended the pension by-law to provide for lower contribution rates from April 1, 2013, to March 31, 2016, and 9% from April 1, 2016. [ 20 ] On July 31, 2017, the Unions filed complaints with the Superintendent, asking her to reject the reports that had been prepared and filed by Mercer, ostensibly on behalf of the Board as the plan’s administrator.

They maintained the actions taken to implement the City’s plan to retroactively reduce contributions and refund the excess and the resulting reports prepared and filed by Mercer, all on the sole instruction of the City, violated the Pension Benefits Act , S.N.B. 1987, c. P-5.1 (the “ Act ”). D. Actions expanding the complaints made to the Superintendent [ 21 ] In August 2017, before dealing with the substance of the Unions’ complaints, the Superintendent questioned the discount rate (estimated rate of return) used in the 2016 actuarial report filed by Mercer.

She noted that at 6.2% (with 0% for adverse deviation), it was greater, by about 1%, than the discount rate utilized in other plans filed with her office. In other words, the 2016 report’s conclusion regarding the required contribution to the Fire and Police Plan for 2016 was based on an assumed rate of return that was higher than the rate used by other filed pension plans. Ultimately, she decided the 6.2% discount rate was too high and the 0% factor for adverse deviation was too low.

Simplistically, the higher the discount rate, the lower the need for current funding and current contributions, all other factors being equal. [ 22 ] To respond to the Superintendent’s position regarding the initial 2016 actuarial report, Mercer sought input/instructions from the City respecting the preparation of a revised 2016 report. City officials were concerned that the Superannuation Board might approve a discount rate (assumed rate of return) for 2016 that was not high enough to justify contributions at 9%.

On the direction of City Council, they advised the Board that, if it selected a discount rate and/or margin for adverse deviation that resulted in a funding deficiency, any such shortfall would have to be resolved by a reduction in member benefits under the plan; it could not be made up by an increase to contributions since the City had capped contributions at 9%. [ 23 ] At a meeting of the Superannuation Board on October 13, 2017, Mercer presented for Board approval a range of discount rates for 2016, all of which were lower than the rate previously rejected by the Superintendent, with various factors for adverse deviation.

After Mercer left the meeting, and despite the warnings from City officials at the meeting of the consequences of removing Mercer as the plan’s actuary, a motion to do so was passed by the Board. [ 24 ] Shortly thereafter, the City amended its by-law respecting the Police and Fire Plan to abolish the Superannuation Board and make itself the plan administrator.

The City subsequently directed Mercer to file a revised 2016 report it had approved, as well as an initial report for 2017. [ 25 ] The Unions expanded their complaints to include the claim that the revised 2016 valuation report was contrary to the Act , as was the abolition of the Superannuation Board, on the basis that it was retaliatory. They claimed these events were additional evidence that Mercer had taken instructions from and acted on behalf of the City, not the Superannuation Board. E.

The Superintendent’s decision regarding the complaints [ 26 ] In a decision issued on July 12, 2018, the Superintendent approved the split of the Old Plan based on the revised Asset Split Report. As noted, this decision was not contentious. The Superintendent accepted the revised actuarial valuations for funding purposes filed in July 2017 for 2013, 2014 and 2015, which reflected the reduced contributions to the Fire and Police Plan during those periods. She also accepted the revised report for 2016 filed by the City (in December 2017) after it became the plan administrator.

She concluded there was no breach of conflict of interest rules or any other statutory obligations outlined in the Pension Benefits Act , by the City or its staff. She also dismissed the Unions’ claim that the City’s decision to abolish the Superannuation Board, as of November 27, 2017, was invalid. F. The Tribunal ’s decision [ 27 ] The Unions appealed the Superintendent’s decision to the Tribunal . In its August 2020 decision ( Fredericton Police Association v.

New Brunswick (Superintendent of Pensions), 2020 NBFCST 4 ), the Tribunal noted that the Superintendent’s investigation did not include much of the evidence that was entered before it:

In our view, the Superintendent’s investigation did not satisfy the criteria of thoroughness. The Unions’ complaint raised serious allegations of conflict of interest and breach of fiduciary duties by Jane Blakely – a plan administrator. There were also serious allegations of misconduct by David Hughes – the plan’s actuary. These will be discussed later in the decision. We are cognizant that the Superintendent was not required to leave no stone unturned in conducting her investigation.

However, in our view and considering the history of the dispute, the nature of the allegations required the Superintendent to obtain evidence from the plan administrator – the Superannuation Board – during her investigation. This she did not do. She did not contact any Superannuation Board members to obtain information about the roles of both Jane Blakely or David Hughes. She also did not obtain the minutes of the Superannuation Board meetings. Obtaining these documents was not a fishing expedition.

A less than thorough investigation would necessarily have included obtaining evidence from the Superannuation Board regarding the allegations pertaining to conflict of interest and breach of fiduciary obligations by a Board member and allegations of misconduct by the plan actuary.

As is discussed further in these reasons, the evidence clearly points to conflictual behaviour and breaches of fiduciary obligations by both Jane Blakely and David Hughes. [ Tribunal decision, August 27, 2020, para. 82] [ 28 ] The Tribunal made the following general observation regarding the issues and circumstances of this case: Many of the issues in this appeal arise from a poor delineation of the respective authorities and roles of the Superannuation Board as plan administrator and the City as plan sponsor.

There are multiple instances where the City, in its capacity as plan sponsor, usurped the authority of the Superannuation Board. [ Tribunal decision, August 27, 2020, para. 75] [ 29 ] From the balance of the Tribunal ’s decision, this observation would appear to be an intentional understatement. The Tribunal found that “[a]t no time after the April 25, 2017 meeting did the Superannuation Board approve the revised actuarial valuation reports for 2013 to 2015 or the initial actuarial valuation report for 2016” (para. 116).

The Tribunal also made the following findings regarding the City’s and Mercer’s involvement in the preparation and filing of those reports with the Superintendent, none of which was challenged on appeal : The City did not have the authority to approve the discount rate for the 2016 actuarial valuation report. It further did not have the authority to direct Mercer (or David Hughes) as the Plan actuary to prepare and file the actuarial report. This was the Superannuation Board’s responsibility as the plan administrator. The City conceded this at the hearing . Mr.

Hughes’ participation in the May 8 [City Council] meeting clearly depicts that he was taking his instructions from the City rather than the Superannuation Board. Mr. Hughes knew that the discount rate had to be approved by the Superannuation Board as plan administrator. He also knew that the Superannuation Board had revoked its approval of the 2016 actuarial valuation report. We conclude that David Hughes knew he did not have the Superannuation Board’s approval to submit the revised actuarial valuation reports for 2013 to 2015 and the initial actuarial valuation report for 2016. Despite this, Mr.

Hughes filed the 2016 actuarial valuation report with the Superintendent on July 11, 2017. [ Tribunal decision, August 27, 2020, paras. 118-119] [Emphasis added.] [ 30 ] The circumstances in which the Superintendent may make an order respecting a pension plan are set out in s. 72(2) of the Act , as follows:

72(2) The Superintendent may make an order under this

section if the Superintendent is of the opinion, upon reasonable and probable grounds, (

a) that the pension plan , pension fund or prescribed retirement savings arrangement is not being administered in accordance with this Act , the regulations or the pension plan , (

b) that the pension plan or prescribed retirement savings arrangement does not comply with this Act and the regulations, (

c) that the administrator of the pension plan, the employer or any other person is violating a provision of this Act or the regulations , […] (

d) that the assumptions or methods used in the preparation of a report required under this Act or the regulations in respect of a pension plan are inappropriate for a pension plan , (

e) that the assumptions or methods used in the preparation of a report required under this Act or the regulations in respect of a pension plan do not accord with generally accepted actuarial principles, (

f) that a report submitted in respect of a pension plan does not meet the requirements and qualifications of this Act , the regulations or the pension plan , […] or (

h) that there are or are likely to be insufficient funds available to pay the pensions and benefits under the plan . [Emphasis added.] 72(2) Le surintendant peut rendre une ordonnance en vertu du présent

article si, fondé sur des motifs raisonnables et probables, il est d’avis

a) que le régime de pension , le fonds de pension ou l’arrangement d’épargne-retraite prescrit n’est pas administré conformément à la présente loi, aux règlements ou au régime de pension ,

b) que le régime de pension ou l’arrangement d’épargne-retraite prescrit n’est pas conforme à la présente loi et aux règlements,

c) que l’administrateur du régime de pension, l’employeur ou toute autre personne enfreint une disposition de la présente loi ou des règlements , […]

d) que les hypothèses ou méthodes utilisées dans la préparation d’un rapport requis en vertu de la présente loi ou des règlements relativement à un régime de pension ne sont pas pertinentes ,

e) que les hypothèses ou méthodes utilisées dans la préparation d’un rapport requis en vertu de la présente loi ou des règlements relativement à un régime de pension dérogent aux principes actuariels généralement acceptés,

f) qu’ un rapport soumis relativement à un régime de pension ne répond pas aux exigences et conditions de la présente loi, des règlements ou du régime de pension , […] ou

h) qu’ il y a insuffisance de fonds pour verser les pensions ou les prestations ou qu’une telle insuffisance est vraisemblable . [C’est moi qui souligne.] [ 31 ] The Tribunal was satisfied there were reasonable grounds for the opinion that the circumstances mentioned in s. 72(2) existed and it vacated the Superintendent’s decision (except her determination that abolishing the Board was valid). The Tribunal made the order, under s. 72(1) , it concluded the Superintendent should have made (s. 76(1)(b)). The Tribunal :

a) ordered Mercer and David Hughes be removed as the actuaries for the Police and Fire Plan and the administrator retain a new

actuary to provide independent and impartial actuarial services for the plan;

b) ordered the new actuary to (

i) conduct an analysis to determine the appropriate funding (contribution) levels for the Police and Fire Plan from its inception in 2013, including to determine whether a CRA exemption respecting such contributions is required; and (ii) redo the annual actuarial valuation reports for 2013 to present and submit them to the Superintendent; and

c) rejected the revised 2016 actuarial valuation report filed by the City as plan administrator in December 2017 and ordered a revised report be submitted to the Superintendent. II.

Issues on Appeal [ 32 ] The grounds of appeal advanced by the City and the Superintendent claim the Tribunal erred by: 1) holding a de novo hearing, deciding no deference was owed to the Superintendent’s decision and reviewing it on a correctness standard; 2) raising, on its own motion, the issue of the Superintendent’s right to participate in the Unions’ appeal to the Tribunal and not deciding that, under s. 75 of the Act , her participatory rights were unrestricted; 3) dismissing the City’s claim that the Unions had not properly raised, as a ground of appeal, the assertion that Mercer was in a conflict of interest and acted contrary to its duty under s. 17(3); 4) forming the opinion there were reasonable and probable grounds to believe one or more of the circumstances enumerated in s. 72(2) existed (which entitled the Tribunal to make an order under s. 72(1) ), because the Tribunal :

a) wrongly concluded Mercer was an “agent” of the plan administrator, for the purposes of s. 18(3), and, as a consequence, was subject to the same standards (regarding conflicts of interest) that apply to the member of a board (that is an administrator), under s. 17(3);

b) misinterpreted and misapplied the “two hats doctrine” in concluding Jane Blakely (the City’s legal counsel for labour, employment and pension matters), as a member of the Superannuation Board, was in a conflict of interest, in violation of s. 17;

c) unjustifiably concluded there were likely to be insufficient funds available to pay the pensions and benefits under s. 72(2)(h) (because the plan was exempt from solvency special payments pursuant to s. 42.1 of Regulation 91-195); and

d) erroneously concluded s. 72 imposes fiduciary-like responsibilities on the Superintendent to look out for the best interests of plan members, when she is approving (

i) pension plan amendments that set plan contribution rates, and (ii) discount rates in actuarial valuation reports; and 5) concluded the Superintendent’s jurisdiction to make orders under s. 72 includes the ability to require the plan administrator to retain an independent actuary and require that actuary, when acting on the implementation of the Tribunal ’s order, to determine whether a CRA exemption respecting contributions in excess of 9% is warranted and/or possible. III. Background A. The City’s decision to convert the Old Plan to a shared risk plan

[ 33 ] Before the split of the Old Plan, the City maintained a single defined benefits pension plan for all employees. It was established by by-law and administered by a board of administrators. [ 34 ] The Collective Agreements between the City and the Unions provide that union members who have completed 25 years of service (or whose age plus years of service equals 75) will be eligible to retire with an unreduced pension. The language of the current Collective Agreements for the Unions is substantially the same.

The Unions note that their members typically contribute more to the pension plan than other City employees because they generally retire earlier. The agreement for the police provides: 22.01 The Parties agree that a police officer that has completed twenty-five (25) years of service or whose age plus years of service equals at least seventy-five (75) will be eligible to retire with an unreduced pension . Service shall mean years or fractions thereof employed as a police officer with the City of Fredericton.

The additional cost of this provision shall be shared equally between the Employer and the employee, to the maximum permitted by the Income Tax Act. 22.02 The Employer will provide 30 days written notice to the Union of all changes it intends to make to the terms of the City of Fredericton Pension Plan. The Employer and the Union will enter into meaningful discussions with a view to attempting to resolve any differences between them .

At the end of the 30 day notice period, the Employer can proceed to implement the changes. [Emphasis added.] [ 35 ] Ongoing deficits in the Old Plan prompted the City to make changes. In 2011, the City passed an amendment to the pension by-law that increased contributions to the plan, reduced indexing, and changed the definition of “pensionable earnings,” among other things. In response, the Police Association filed a complaint of unfair labour practice with the New Brunswick Labour and Employment Board. The Fire Fighters Association similarly filed a complaint.

In September 2011, the Labour and Employment Board found the City violated the Industrial Relations Act , R.S.N.B. 1973, c. I-4 , and issued an order prohibiting it from making changes until the complaints were resolved or determined by arbitration. [ 36 ] In October 2012, the City advised the funding deficit in the Old Plan had increased and a series of meetings began to discuss potential solutions, including the possibility of converting to a “shared risk” plan. The Pension Benefits Act had been recently amended, in 2012, to provide for shared risk plans.

In January 2013, City officials presented a draft Memorandum of Understanding for the conversion of the Old Plan to a shared risk plan. The Unions did not agree to the MOU and opposed the change. [ 37 ] On March 18, 2013, City Council approved the plan’s conversion as provided for in the MOU, which had been accepted by the other employees of the City, including those represented by four unions. On the same day, the Police Association filed a complaint with the Labour and Employment Board . Two days later, the Fire Fighters Association also filed a complaint of unfair labour practice.

Both requested an interim order to prevent the planned conversion pending a determination of their complaints. [ 38 ] On March 19, 2013, the City sent a letter to the Superintendent of Pensions advising of its intention to convert the Old Plan as of March 31, 2013. It appears the City maintained the position, at least initially, that the Old Plan could be converted despite the opposition of the Unions. [ 39 ] Before the Labour and Employment Board, the Unions maintained that the change proposed by the City was contrary to the Board’s 2012 decisions.

They also asserted it was a significant alteration of the conditions of their employment and was therefore properly the subject of negotiations respecting their collective agreements, failing which a resolution of the issue could be addressed by an interest arbitration board. The Labour and Employment Board issued an interim order restraining the conversion of the Old Plan as it related to the Unions. B. The split of the Old Plan into two plans

[ 40 ] Following the Labour and Employment Board decisions, the City decided to exclude the members of the Unions from its plan to convert the Old Plan to a shared risk plan and it decided to (1) establish a new defined benefit pension plan for the police and fire employees; (2) transfer the assets and liabilities relating to those employees from the Old Plan to the new Police and Fire Plan, as of March 31, 2013; and (3) convert the Old Plan into a shared risk plan for all remaining employees. [ 41 ] The City established the Police and Fire Plan by by-law, the “By-law to Continue the Superannuation Plan for Certain Employees of the City of Fredericton.” It provided for the plan to be administered by a “Board of Administrators” (the Superannuation Board), comprised of appointees by the City and the Unions.

Since its inception, the Superannuation Board has been comprised of five persons appointed by the City and five nominated by the Unions (including a retiree). The City’s appointees in 2016/2017 included three councillors , and two City officials.

Relevant provisions of the By-law are: 2.2.4 “ Actuary ” means a Fellow of the Canadian Institute of Actuaries, or a firm of actuaries, at least one of whose members is a Fellow of the Canadian Institute of Actuaries, appointed by the Administrator to provide the actuarial services required under the Plan . 2.2.5 “ Administrator ” means the Board of Administrators, as described in

Section 10.6. 4. CONTRIBUTIONS 4.1 Member Contributions 4.1.1 (

i) Members of UBJC 911 shall contribute by payroll deduction as follows: [see below] (ii) Members of IAFF 1053 shall contribute by payroll deduction as follows: [see below] 4.2 Employer Contributions 4.2.1 The Employer shall contribute an amount which is equal to the Members’ contributions, as described under subsection 4.1. 4.2.2 If, on the advice of the Actuary , the contributions described in paragraphs 4.1.1 and 4.2.1 are insufficient to fund the benefits accruing in the Plan Year, and to provide at least the minimum funding, as required by 2.2.4 « actuaire »

Fell ow d e l’Institut canadien des actuaires, ou cabinet d’actuaires dont au moins un membre possède cette qualité, désigné par l’administrateur pour fournir les services actuariels qu’exige le régime . 2.2.5 « administrateur » La Commission d’administration décrite au sous-article 10.6. 4. COTISATIONS 4.1 Cotisations de salarié 4.1.1 (

i) Les membres de la

section UBJC 911 cotiseront, au moyen de retenues salariales, comme suit : [voir ci-dessous] (ii) les membres de la

section IAFF 1053 cotiseront, au moyen de retenues salariales, comme suit : [voir ci-dessous] 4.2 Cotisations d’employeur 4.2.1 L’employeur verse des cotisations égales aux cotisations de salarié prévues au sous-article 4.1. 4.2.2 Si, de l’avis de l’actuaire , les cotisations prévues aux paragraphes 4.1.1 et 4.2.1 sont insuffisantes pour couvrir les prestations constituées dans l’année du régime et assurer au moins la capitalisation minimale qu’exige la législation provinciale

Applicable Provincial Legislation, of any unfunded actuarial liability or solvency deficiency that may exist, then the Administrator may increase the contributions under paragraphs 4.1.1 and 4.2.1 so that contributions are sufficient . 4.2.3 If: (

i) on the advice of the Actuary, and taking into account any funding excess that may exist, the contributions described in paragraphs 4.1.1 and 4.2.1 are more than sufficient to fund the benefits accruing in the Plan Year, and provide at least the minimum funding, as required by Applicable Provincial Legislation, of any unfunded actuarial liability or solvency deficiency that may exist; or (ii) the contributions described in paragraphs 4.1.1 and 4.2.1 would not be eligible contributions under the Income Tax Act , then the Administrator may decrease the contributions under paragraphs 4.1.1 and 4.2.1 so that these contributions are eligible contributions under the Income Tax Act and still meet the minimum funding requirements under the Applicable Provincial Legislation. 10 ADMINISTRATION 10.2 Administrative Duties 10.2.1 The Administrator shall make reasonable efforts to ensure that the Plan and the Pension Fund are administered in accordance with Applicable Provincial Legislation and the Income Tax Act . 11.1 Right to Amend or Terminate 11.1.1 This Plan is established as a continuing policy, but the Employer reserves the right to amend, alter, modify, or terminate applicable pour couvrir tout déficit actuariel ou de solvabilité, l’administrateur peut augmenter les cotisations prévues auxdits paragraphes de manière qu’elles deviennent suffisantes à ces fins . 4.2.3 Si : (

i) lorsque, de l’avis de l’actuaire, ces cotisations, compte tenu de tout excédent de capitalisation, sont plus que suffisantes pour couvrir les prestations constituées dans l’année du régime et assurer au moins la capitalisation minimale qu’exige la législation provinciale applicable pour couvrir tout déficit actuariel ou de solvabilités; ou (ii) lorsque ces cotisations ne seraient pas admissibles aux termes de la Loi de l’impôt sur le revenu , l’administrateur pourrait alors réduire les cotisations en vertu des paragraphes 4.1.1 et 4.2.1 de sorte que ces cotisations soient admissibles aux termes de la Loi de l’impôt sur le revenu et qu’elles respectent encore les exigences minimales de capitalisation et vertu de la législation provinciale applicable. 10 ADMINISTRATION 10.2 Fonctions administratives 10.2.1 L’administrateur déploie des efforts raisonnables afin de s’assurer que le régime et la caisse de retraite sont administrés en conformité avec la législation provinciale applicable et la Loi de l’impôt sur le revenu . 11.1 Droit de modification et d’abolition 11.1.1 Le régime est en principe permanent, mais l’employeur se réserve le droit de le modifier ou de l’abolir en tout ou en

partie à

the Plan , either in whole or in part, without the consent of any other person, provided that such amendment , alteration, modification, or termination is not contrary to applicable Provincial Legislation, the Income Tax Act , or any other applicable law. 11.2 No Reduction of Benefits 11.2.1 No amendment , alteration, modification, termination, or partial termination of the Plan shall reduce the amount of benefits to which the Members, Former Members, Retired Members, their Spouses, and their Beneficiaries are entitled under the Plan up to the date of such amendment , alteration, modification, termination, or partial termination, and with respect to which the required contributions have been made. [Emphasis added.] sa seule initiative, sous réserve de la législation provinciale applicable , de la Loi de l’impôt sur le revenu et de toute autre loi applicable. 11.2 Irréductibilité conditionnelle des prestations 11.2.1 La modification ou l’abolition totale ou partielle du régime ne peut avoir pour effet de réduire le montant des prestations constituées à cette date auxquelles ont droit les participants, anciens participants, participants retraités, ainsi que leurs conjoints ou leurs bénéficiaires, et à l’égard desquelles les cotisations obligatoires ont été versées. [C’est moi qui souligne.] [ 42 ]

Article 4.1.1 of the By-law sets out the contribution rates for the Police and Fire members of the plan. As of March 31, 2013, the By-law provided that the rates were fixed at: ➢ Fire : 9.59% of pensionable earnings less than $5,000, plus 11.19% of earnings over $5,000; and ➢ Police : 9.54% of pensionable earnings less than $5,000, plus 11.14% of earnings over $5,000. [ 43 ] These rates, of approximately 11%, are a continuation of the contribution rates that existed under the Old Plan. Under

Article 4.2.1, these are matched by the City, for a total of approximately 22% of pensionable earnings. Contributions continued at this rate until the City applied for approval to amend the By-law in August 2017. The Tribunal concluded the Superintendent should have rejected this amendment, which provided for lower rates, retroactively, from 2013. [ 44 ] As mentioned, the City retained Mercer to assist in splitting the Old Plan and, by November 2013, it prepared the Asset Split Report. In December 2013, the City presented a

summary of this report to the Unions. While Mercer would later prepare and file the annual reports as actuary for the Police and Fire Plan, it was never formally appointed by the Superannuation Board. [ 45 ] I pause to note that, to address the deficit that continued from the Old Plan, the City amended the Police and Fire Plan, as of January 1, 2014, to remove post-retirement indexing of benefits accruing after January 1, 2014. As indicated, at the meeting of the Superannuation Board on March 17, 2017, Mr.

Sullivan suggested that indexing be reinstated, as a possible alternative to retroactively reducing and refunding the contributions made between 2013 and 2016. [ 46 ] On February 26, 2014, despite the Unions’ concerns regarding the proposed asset transfer, the City applied to the Superintendent for approval to divide the Old Plan as proposed in Mercer’s report. In November 2014, the Superintendent gave her consent, and the Unions appealed. C. The Tribunal ’s first decision

[ 47 ] In the appeal to this Court, the Unions submit the Tribunal ’s first decision reinforces their current claim that Mercer was retained by the City and has been taking instructions from the City for some time, separate from the Superannuation Board, contrary to the interests of the members of the Police and Fire Plan and contrary to both the Act and the By-law.

They note that, while a member of the Superannuation Board, Jane Blakely acted as counsel to the City before the Tribunal in 2016, and she has given directions to Mercer since that time, along with Tina Tapley, the City’s Treasurer (and a trustee of the Shared Risk Plan). In 2014, Ms.

Blakely, the City’s Director of Strategic Direction and Consulting and a practising member of the Law Society, was appointed, by resolution of City Council, to “provide legal advice and/or opinions to” the City “with respect to labour, employment and pension matters.” [ 48 ] The Tribunal ’s first decision explains that the Unions’ appeal proceeded by way of a hearing de novo , and the Superintendent, who was a party to the appeal pursuant to s. 75(1), took “no position regarding the merits of [the Unions’] appeal other than to provide an explanation of the context in which the decision was made and drawing the attention of the Tribunal to those considerations rooted in the Superintendent of Pensions’ specialized jurisdiction and expertise in pensions law” (the Tribunal ’s first decision, at para. 13). [ 49 ] As noted, the Unions’ position was that the use of a going concern apportionment methodology resulted in Mercer recommending an inequitable division of the assets of the Old Plan, a division that preferred the Shared Risk Plan and all other City employees.

The Unions maintained the split ought to be based on a solvency apportionment method, with both plans having the same transfer ratio at the time of the split. The City maintained the going concern apportionment methodology was appropriate because both plans benefited from a solvency exemption and, as a result, were annually funded, on a going concern basis. [ 50 ] Brendan George, of George & Bell Consulting, an actuary, was qualified as an expert, and his report was entered into evidence on consent. A representative of Mercer was not called as a witness. In relation to Mr.

George’s evidence regarding the different valuation methods, the Tribunal summarized: Mr. George explained that a going concern valuation is generally used as the method to determine the contributions that should be going into a pension plan to fund the benefits . When employing this method, the actuary makes certain assumptions and then makes a recommendation to the plan sponsor on what is an appropriate contribution that should be going into the plan to fund the benefits over a long period of time […]. […] Mr.

George testified that the solvency valuation calculates the assets and liabilities of the pension plan if it were wound up on the date of the report . According to Mr. George, you determine the liabilities by determining the payout to pension plan members on that given day. Active members would receive a lump sum transfer value (the calculation of which is defined) and retirees would generally have an annuity purchased for them. Mr.

George explained that when you divide the assets by the windup liability, you obtain the transfer ratio. [ Tribunal decision, March 9, 2016, paras. 73, 75] [ 51 ] The Tribunal noted Mr. George testified that, in a solvency apportionment, “there is really no subjectivity and discretion because the assumptions are mandated by legislation and actuarial standards set by the Canadian Institute of Actuaries” (para. 94), whereas a going concern apportionment methodology “relies on assumptions which are at the discretion of the actuary and as such it is quite subjective” (para. 93).

Related to the subjectivity of a going concern apportionment method, the Tribunal also referred to Mr. George’s other concern, namely the City’s reliance on a single actuary. The Tribunal explained: […] The calculation of the transfer of assets was conducted by a single actuarial firm at the direction of the City and there was no actuarial firm representing the interests of the Police and Fire Plan. According to Mr.

George, in every transfer in which he has been involved based on the going concern apportionment method, there were two actuaries, one for each plan, thus ensuring a negotiation process to ensure the interests of the members of both plans were represented. [ Tribunal decision, March 9, 2016, para. 95] [Emphasis added.] [ 52 ] In summarizing its reasons for rejecting Mercer’s approach, which had been accepted by the Superintendent, the Tribunal stated:

In our view, faced with an application for transfer of assets, the Superintendent of Pensions cannot discharge her duty under the Pension Benefits Act without having both the going concern apportionment and the solvency apportionment results. Without these results, the Superintendent of Pensions cannot determine what best protects the benefits of the plan members. In our view, the discrepancy of 9% in the asset transfer ratio between the Police and Fire Plan and the City Plan should have prompted the Superintendent of Pensions to further investigate the application.

There was some suggestion at the hearing that all the Superintendent can do faced with an application for consent to a transfer of assets is to either consent or refuse consent. In our view, this position is too simplistic.

In light of the 9% discrepancy in the asset transfer ratio set out in the solvency valuation of the Mercer report, the Superintendent could have done the following, which are all accessory to her authority to provide or refuse consent : • suggested that a second actuarial firm be retained as is normally done when the going concern apportionment is employed to ensure checks and balances between the two plans. This would have ensured the interests of the police and firefighters were represented.

Again, we see this as accessory to her authority to provide or refuse consent; • requested further information; and • suggested that the solvency apportionment method be calculated to allow her to compare those figures with the going concern apportionment figures provided in the Mercer report. In our view, the solvency apportionment method clearly protects the interests of members of both plans as they maintain the same asset transfer ratio from the Old Plan into their new plans.

An equal transfer ratio, in our view, fairly ensures the protection of benefits of members of the two plans. [ Tribunal decision, March 9, 2016, paras. 110-114] [Emphasis added.] [ 53 ] For these reasons, the Tribunal ordered the Old Plan be split using the solvency apportionment method.

The City’s motion for leave to appeal to this Court was granted in May 2016 and, while the Board of Trustees of the Shared Risk Plan had not been a party to the proceeding before the Tribunal , it was also granted leave to appeal. [ 54 ] Before turning to the City’s decision to withdraw its appeal and the proposal to retroactively reduce contributions to the Police and Fire Plan, I would note that, only months before so advising the Superintendent, City Council passed a resolution (on September 12, 2016) to have the Superannuation Board develop a funding policy that would avoid increasing contributions to the plan above 11% (approx.), the level that existed under the Old Plan and had continued thereafter, until the time of Council’s motion: […] THAT Council directs City Staff to work with the Superannuation Board for By-law No.

A-13, to develop a funding policy for the Police/Fire Define Benefit Plan to achieve the following: • No increase in the City’s contribution to the Police/Fire Defined Benefit Plan beyond the level at March 31, 2013 . […] [Emphasis added.] D. Actions leading to the complaints made by the Unions to the Superintendent

[ 55 ] By December 2016, the City decided to withdraw its appeal and implement the Tribunal ’s first decision. [ 56 ] In early December 2016, Mercer asked the Superintendent for an extension of time to file the Plan’s 2015 and 2016 actuarial reports. It explained this was necessary due to the “uncertainty regarding the assets split” caused by the Tribunal ’s first decision and the pending appeals.

However, Mercer also advised that it expected this “uncertainty regarding the asset split to be resolved very soon and we will be writing to you shortly regarding our proposed solution for this.” [ 57 ] By letter dated December 20, 2016, Mercer advised the Superintendent that the “City believes it is now in the best interests of both Plans (and its employees) to work towards implementing the Tribunal ’s decision” and to “outline our proposed approach” for doing so.

Mercer also advised the appeals would be withdrawn. [ 58 ] As a result of this change in the City’s position, Mercer explained it would be necessary to redo the Asset Split Report, as of March 31, 2013. It also explained the increase in the Plan’s initial funding as of March 31, 2013, meant the annual minimum contribution requirements in and after 2013 would be reduced: Using the solvency valuation method when the Fire and Police Plan was initially set up will result in the initial funded ratio for the Fire and Police Plan being higher.

The knock on effect being that all subsequent actuarial valuations will now show a higher funded ratio and the minimum employee/employer contributions will be lower as the contribution requirements are lower. Note that the total required contributions to the Fire and Police Plan are split 50/50 between the City and the employees.

We propose the following steps are taken to implement the Tribunal ’s decision in respect of the Fire and Police Plan[.] [Emphasis added.] [ 59 ] In listing the steps necessary to “implement the Tribunal ’s decision,” Mercer advised the Superintendent the “Employees will be refunded for contributions paid in excess of the amounts required in the new actuarial reports [to be] filed for 2013, 2014 and 2015.” The steps Mercer set out are (albeit in a different order): 1. Recalculate the split of the Old Plan and file a new Asset Split Report as of March 31, 2013; 2.

The assets be physically apportioned to the two plans on the “asset transfer date” “ with Mercer, on behalf of the Fire and Police Plan , and Morneau Shepell, on behalf of the Share Risk Plan attesting to the value of the assets to be split” using a solvency split as of March 31, 2013; 3.

Resubmit “plan text” as at April 1, 2013, that provides for lower contribution amounts for 2013, 2014 and 2015 (in other words, file an amendment to the City’s pension by-law that retroactively reduces the contribution rates for those years), which Mercer’s “initial estimates indicate[d]” would be reduced to: a) 10.19% of pensionable earnings from April 1, 2013, to March 31, 2014 , b) 9.30% of pensionable earnings from April 1, 2014, to March 31, 2015, and c) 9.57% of pensionable earnings beginning April 1, 2015; and 4. File (

i) revised actuarial valuation reports for 2013 and 2014, and (ii) an initial actuarial report for 2015 (the 2015 report would later be filed before this “plan” was implemented in July 2017); and 5. Refund employees for contributions paid in excess of what was required.

[ 60 ] While the letter indicates a refund was possible, because of the additional $5,500,000, Mercer does not indicate it was necessary or required and, as stated, the Unions challenge the idea that a refund was either necessary or in the best interests of the Police and Fire Plan.

In addition, although not expressly underscored in Mercer’s letter to the Superintendent, any refund of contributions would be divided equally between the employees and the City. [ 61 ] Mercer advised the Superintendent that the proposed physical split of assets was planned for January 31, 2017, and it requested her response to the proposal before then.

Mercer stated that, if it did not hear of any concerns by that time, it would proceed to implement “our proposed solution.” None of these steps would be completed until July 2017. [ 62 ] Although Mercer’s letter implies it represents and is the actuary for the Police and Fire Plan, it does not expressly indicate upon whose instructions it is acting, nor does it identify a distinction between the Police and Fire Plan, as represented by the Superannuation Board, and the City.

The letter begins: We are writing to you to advise you of the approach that we intend to adopt regarding the transfer of assets from the [Shared Risk Plan] to the [Fire and Police Plan]. We outline our proposed approach for implementing the Tribunal ’s decision further below but before doing so we think it is worthwhile recapping how the City has arrived at the position it finds itself in with regard to its pension plans. [Emphasis added.] [ 63 ] Mercer advised the Superintendent that it intended to attest to the value of the split of the Old Plan, on behalf of the Police and Fire Plan.

It closed the letter by advising the proposed plan for implementing the Tribunal ’s first decision had been discussed with and agreed to by the City and Morneau Shepell (the actuary for the Shared Risk Plan), implicitly representing to the Superintendent the approach outlined was acceptable to all parties.

However, while the letter indicates it was copied to the City and Morneau Shepell, there is no indication a copy was sent to the Superannuation Board, or any other party connected to the Police and Fire Plan. [ 64 ] The Unions claim they did not learn of this letter until it was later disclosed, not as part of the Superintendent’s adjudication of their July 2017 complaints, but later still, as part of the disclosure in response to the appeal of her decision to the Tribunal . [ 65 ] The Unions point out that, notwithstanding the communication with the Superintendent in December 2016 and January 2017, the minutes of the January 2017 meeting of the Superannuation Board do not indicate there was any notice of, or discussion regarding, the change in the City’s position respecting its appeal of the Tribunal ’s first decision or the plan submitted by Mercer regarding the intended retroactive reduction to the Plans’ contribution rates (and the contribution refund). [ 66 ] The Unions maintain Mercer’s communication with the Superintendent on the direction of the City is undisputable evidence Mercer was taking instructions from the City, without the knowledge of the Superannuation Board, and it unacceptably continued to do so even after the plan was presented to the Board in March 2017.

As the Tribunal noted in its decision, the City’s instructions to Mercer included vetting and suggesting modifications to Mercer’s planned presentation to the Board in March 2017. [ 67 ] Mercer’s presentation to the Superannuation Board was made at an “emergency” meeting of the Board on March 17, 2017. Not surprisingly, at the meeting, the decision to split the Old Plan as directed by the Tribunal ’s first decision was not problematic; however, the proposal to retroactively reduce contributions between 2013 and 2015 (and refund the excess) became contentious.

Similarly, Mercer’s advice that contributions to the plan should be capped at 9%, beginning in 2016, the same contribution rate established for the Shared Risk Plan, also became contentious. This was particularly so after the Board was told the City planned to transfer its share of the contribution refund to the Shared Risk Plan. While the record does not indicate the amount to be refunded, it was claimed at the time that approximately $1,000,000 would be refunded to the City. If accurate, the total amount refunded from the Police and Fire Plan would be approximately $2,000,000.

In addition, it was acknowledged that the reduction to 9% would decrease contributions to the plan by $700,000 annually. [ 68 ] The agenda circulated prior to this meeting identified two issues: (1) an update regarding the Asset Split of the Old Plan; and (2) a review of the 2016 actuarial results. It indicated Mercer would speak to both issues. No information respecting these issues was provided in advance. The proposal to retroactively reduce contributions was addressed as part of the 2013 split of the Old

Plan. In relation to this asset split, the Board’s minutes record the following: The plan sponsor has been directed to use the solvency basis approach to split assets between the Police & Fire Plan and the Shared Risk Plan. All valuations since 2013 need to be recalculated. The restated deficit for 2015 since the asset split is 6.2 million dollars. Contribution rates are higher than they need to be. Going forward the contribution rate needs to be dropped. Each plan member will receive a refund for their over contributions. Blair Sullivan asked why we would refund contributions and not reinstate indexing?

David answered by saying CRA restricts contributions and the old plan was exempt from this rule. A new waiver would need to be put in place for any contributions over 9%. Where the Defined Benefit plan is now considered a new plan it does not meet the test. Contributions cannot be more than half the benefits. For the plan to be exempt it needs to meet these requirements and it does not.

We are basically resetting the plan because the assets have changed. [Volume 9, pp. 2770-2771] [Emphasis added.] [ 69 ] In his testimony before the Tribunal , Brendan George took a different position on the need to retroactively reduce and refund contributions as a result of the $5,500,000 increase to the initial funding of the Police and Fire Plan as of April 1, 2013.

Further, as will be seen, even Mercer expressed the view that refunding contributions was not preferable given the plan had a large solvency deficit. [ 70 ] While the minutes indicate the Board was advised that the contributions were higher than they needed to be, and each plan member would receive a refund, they do not record a request for approval to choose that as an option from among alternative recommendations.

As will be seen, there would be a resolution to recommend to the City that it amend the pension by-law to provide for lower contribution rates for 2013-2015 and going forward from 2016. [ 71 ] Following the second agenda item, namely Mercer’s presentation regarding the actuarial valuation report for funding purposes for 2016, the following resolutions were passed: 1. Confirm the use of a 6.2% p.a. discount rate assumption (which implies an allowance for a margin of 0.0% p.a. for adverse deviations) for the ongoing funding basis for the actuarial funding valuation as at April 1, 2016). 2.

Confirm that there are no changes to any Plan benefits foreseen at this time. 3. Confirm that from April 1, 2016, members and the City will pay contributions at one single flat rate of 9% of pensionable earnings which is to be applied to all pensionable earning (with no difference between fire and police members and no difference below/above the first $5,000 of pensionable earnings). […] 5. Prepare and file actuarial report as at April 1, 2016 for Bargaining Police and Fire Plan by June 30, 2017. 6.

Recommend appropriate changes to the wording of the City’s By-laws to reflect the changes agreed as part of the 2016 actuarial valuation process and to reflect the changes necessary as a result of the need to refile the 2013, 2014 and 2015 actuarial funding valuations .

7. Refund the contributions to members to comply with CRA in respect of the period commencing April 1, 2013 (inception of the Plan) and up to the date the new employee contribution rates are implemented. [Emphasis added.] [ 72 ] Tina Tapley, the City Treasurer (and a Trustee of the Shared Risk Plan) attended the meeting and, later that day, a memorandum she prepared was sent to the Unions to give them notice (under

Article 11.1.1 of the Collective Agreement) of the City’s intention to amend the City’s pension by-law to retroactively lower contribution rates from the levels that had existed since March 31, 2013, and to fix them at 9% from 2016. [ 73 ] The following day, Blair Sullivan, a Board member nominated by one of the Unions, raised a number of procedural and substantive concerns with John MacDermid, the Chair of the Superannuation Board (a City counsellor) regarding Mercer’s presentation and sought to convene another emergency meeting of the Board.

In response to a request from City officials for Mercer’s comments on the issues raised by Mr. Sullivan, Mercer acknowledged the validity of Mr. Sullivan’s concerns regarding the proposed retroactive reduction in contributions (of approximately $700,000 per year) and the 6% estimated rate of returns for 2016.

Mercer also commented on the potential impact of these decisions on the “very real and likely possibility” of having to reduce benefits in the “not too distant future:” Blair is also correct to point out that the “new funding formula” is not able to withstand much in the way of market fluctuations and is dependent on a consistent rate of return annually (i.e. at least 6% p.a.). This is very valid concern and is a direct result of the Plan providing some of the most generous pension benefits in Canada and trying to do this for a combined contribution rate of just 18% of pensionable earnings.

If the Plan is to remain in its current form, there is a very real and likely possibility that Employer contributions will have to rise at some point in the not too distant future (unless we see a sustained period of good investment returns and/or material increases in Canadian interest rates). The alternative to higher employer contributions is reductions in future benefits. [Emphasis added.] [ 74 ] Mr. Sullivan’s communication was followed by a letter to the City from the Unions dated March 31, 2017.

The Unions alleged the recommendations made as part of Mercer’s presentation to the Superannuation Board were made on the direction of the City; they claimed the Board required an independent actuary. The concerns raised in this letter form the basis for the issues in this appeal. It begins by noting: The March 17, 2017 decision recommends a reduction in pension contributions by fire fighters and police officers retroactive to April 1, 2013, and an increase in the estimated rate of investment return in spite of lower than expected returns in 2016.

There are also serious concerns about the process that led to that decision. [ 75 ] Addressing what the Unions inferred was an inadequate and misleading presentation on March 17, 2017, the letter stated: Mercer’s representative explained the recommendations that were ultimately approved at the March 17 th meeting, the key of which was the reduction of pension contributions (for both employees and the City) from 11.14% for police officers and 11.19% for fire fighters, to 9% each for all employees and 9% for the City.

The basis for the recommended drop in contributions was based on Mercer’s advice that there was a Canada Revenue Agency restriction on maximum employee contributions of 9% of earnings, and that the CRA was unlikely to grant an exemption. The powerpoint did not explain why fire fighters and police officers historically paid higher contribution rates than other City employees , did not mention the provisions of

Article 18 of the Local 911 collective agreement and

Article 22.02 of the Local 1053 collective agreement that refers to higher contribution rates, and did not give any information as to why it was necessary to obtain an exemption when this was not mentioned in any prior Mercer valuation.

In addition, no details were given as to why the CRA was unlikely to grant the exemption, given that the Fire/Police plan remained underfunded even with the additional $5.5 million, and that the higher contribution rates had been in place for many years. [ 76 ] Regarding the Unions’ belief that Mercer was directed by the City to pursue the expected refund of contributions (alleged to be approximately $1,000,000) and reduce contributions on a go forward basis, they stated:

It was clear during that meeting that at least one SuperBoard member, Jane Blakely, had prior knowledge of the Mercer recommendations. Ms. Blakely also advised SuperBoard members that the approximately $1 million in savings the City would realize through the retroactive decrease in the contribution rate would be given to the Shared​risk plan. SuperBoard members were not advised of all options available to them and the Mercer recommendations were presented as a given. Ms.

Tapley advised SuperBoard members that “this is not a negotiation.” [ 77 ] In relation to their concerns regarding conflicts of interest on the part of City officials and Mercer, the Unions stated: Given her role as a trustee of the Shared-risk pension plan and her fiduciary duty towards members of that plan, why was Tina Tapley permitted to make any representations to the SuperBoard about a decision that would impact the rights and benefits of the Fire/Police plan?

Given her role as legal counsel opposing the appeals filed by Local 1053 and Local 911 to the November 2014 decision of the Superintendent of Pensions, her role in supporting the City’s application for leave to appeal of the Tribunal ’s decision, and her role as Secretary to the Shared-risk Board of Trustees, why did Jane Blakely not recuse herself from any discussion and/or decision related to the split of pension plan assets? Given the comments made in paragraph 113 of the March 9, 2016 Tribunal decision, why was Mercer permitted to do the latest valuation?

Is Mercer still involved in preparing valuations for the Shared-risk plan? How is Mercer paid and from whom does Mercer take instructions? Who advised Ms. Blakely that the City intended to transfer money received from a reimbursement of contributions (i.e. as a result of a retroactive reduction in contributions to the Fire/Police plan) to the Shared-risk plan? […] In light of the above, the position of Local 1053 and Local 911 is that the March 17, 2017 [decision] of the SuperBoard is fundamentally flawed and should be immediately vacated or held in abeyance.

This conclusion is based on the following: […] The failure of Jane Blakely to recuse herself from the March 17th discussions and decisions is a violation of the conflict of interest provisions in

section 17 of the Pension Benefits Act . Mercer was not sufficiently independent to provide advice to the SuperBoard and appears to be taking direction from the City – not the SuperBoard. The SuperBoard should have obtained independent actuarial advice, separate and apart from that provided to the Shared- risk Board of Trustees or the City of Fredericton. This would have required that all SuperBoard members be made aware of all communications between the SuperBoard and the actuary, and that the actuary report directly to the SuperBoard – not to City of Fredericton managers.

The SuperBoard members were erroneously advised that the decision needed to be made on an urgent basis. There is no legal or factual foundation for Mercer’s conclusion that an exemption to continue the higher contribution limits for fire fighters and police officers was necessary, or that an exemption would likely not be granted. […]

It is the further position of Local 1053 and Local 911 that the SuperBoard should obtain independent actuarial and legal advice to review the information provided by Mercer in its March 17th powerpoint presentation, particularly with respect to the recommendation for a reduction in the contribution rates and the issue of whether an exemption is necessary and/or likely to be granted by the CRA . [Emphasis added.] [ 78 ] At the next meeting of the Superannuation Board, on April 25, 2017, the Board “overturned” the decisions made on March 17, 2017.

The Tribunal summarized the Board’s actions as follows: […] They also brought a motion to “obtain actuarial and legal advice independent of the City” – the implication being that Mercer was the servant of the City. The Board adopted these motions, thus revoking its approval of the revised actuarial valuation reports for 2013 to 2015 and the draft actuarial valuation report for 2016 .

At no time after the April 25, 2017 meeting did the Superannuation Board approve the revised actuarial valuation reports for 2013 to 2015 nor the initial actuarial valuation report for 2016. [ Tribunal decision, August 27, 2020, para. 116] [Emphasis added.] [ 79 ] The minutes of this meeting indicate that some Board members held the view that City Council could and/or should make the decisions the Board had “overturned.” They also record that the Board expected contributions would be left as they had been since April 1, 2013.

They record: “John [MacDermid, Chair] stated that the decisions of March 17, 2017 have been overturned and there is a deadline of June 30, 2017 that has been set by the Superintendent. Dan Keenan stated that failing a decision by the committee, then Council needs to make the decision. John also stated that an actuary will have to be present at Council. Blair does not believe that the Superintendent has jurisdiction to make these decisions. They would like to leave contributions as they are, request an extension from the Superintendent and hire an independent actuary to investigate.

Dan Keenan stated that all actuaries are independent. Blair stated that no decision should be made on a presentation. Mercer is not an independent party. He also said that he feels that City staff influenced the presentation by Mercer. Yves stated that everyone has a different role being elected by their union membership. His concern is with that they are dealing with people’s future and he feels they did not have enough time to view the presentation prior to the meeting and had to make a decision. They didn’t have enough time to ask questions of what they were voting on. John stated he agrees with Yves.

Last meeting a vote didn’t need to happen. He hopes in future they receive the valuation a month ahead of the meeting then they can vote a month later. At the March 17 th meeting anyone could have voted against these motions but no one did. Pension contributions will be left as they are currently (Police 9.59% <$5000, 11.19% >$5000 Fire 9.54% <$5000, 11.14% >$5000). Moved by Blair Sullivan, seconded by Rodney Wadden.

Motion carried. [Emphasis in original.] [ 80 ] Despite the fact that the Board had “overturned” the decisions approving Mercer’s proposals, Mercer made a presentation to City Council, on May 8, 2017, regarding the initial actuarial valuation report for 2016. The Tribunal summarized as follows Mercer’s meeting with City Council and the actions that followed:

[…] City Council approved the 6.2% discount rate with 0% margin for adverse deviation employed in the 2016 actuarial valuation report and instructed Mr. Hughes to file the 2016 actuarial valuation report with the Superintendent .

In her May 10, 2017 letter to the Police and Fire Unions, Tina Tapley confirms that City Council adopted the following resolutions: • that a 6.2% p.a. discount rate assumption is confirmed for the 2016 actuarial valuation; • the City confirms there are no changes foreseen at this time to the plan benefits; • a contribution rate of 9% will be used from April 1, 2016 onward; • the Plan Actuary is directed to prepare and file the Actuarial Report as at April 1, 2016 for the Bargaining Police and Fire Plan by June 30, 2017.

The City did not have the authority to approve the discount rate for the 2016 actuarial valuation report. It further did not have the authority to direct Mercer (or David Hughes) as the Plan actuary to prepare and file the actuarial report. This was the Superannuation Board’s responsibility as the plan administrator. The City conceded this at the hearing. Mr. Hughes’ participation in the May 8 meeting clearly depicts that he was taking his instructions from the City rather than the Superannuation Board. Mr. Hughes knew that the discount rate had to be approved by the Superannuation Board as plan administrator.

He also knew that the Superannuation Board had revoked its approval of the 2016 actuarial valuation report. We conclude that David Hughes knew he did not have the Superannu

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