Legal Blog

Pension Benefits

Can pension benefits be seized? If they cannot, can a creditor have the court appoint an equitable receiver to collect the pension benefits when they are paid to the pensioner? These questions were answered in Workers’ Compensation Board v. Lettroy, a 2006 decision of the Ontario Court of Appeal.

Fraud

Lettroy was an employee of the then WCB. He was in a position of power, so much power that he engaged in a scheme in which, through his auspices, the WCB paid out $1.1 million to three illegitimate recipients. WCB caught and prosecuted Lettroy and he went to jail for fraud. Not surprisingly, he was also fired.

In 1994, the WCB obtained a court order appointing an equitable receiver to collect payments from Lettroy’s pension plan (the “Plan”) when they fell due and to pay them to the WCB.

In 1988, before the fraud took place, Lettroy had designated his three children as his beneficiaries under the Plan.

Before the Plan started to pay Lettroy, Lettroy died. Since he had appointed beneficiaries under the Plan, the Plan would normally have paid a lump sum of $445,000 to the beneficiaries. However, the WCB claimed the money. The trustee of the Plan felt that the 1994 order did not cover a lump sum payout and therefore balked at paying the money to the equitable receiver. Accordingly, the WCB went back to court to amend the order to cover a lump sum payout. In doing so, it notified the beneficiaries, for the first time, that there was an existing order. Not surprisingly, the beneficiaries opposed the relief that the WCB claimed.

The motions judge granted the motion. He held that, at the time of the original motion, Lettroy was the sole owner of the Plan benefits and, accordingly, once these benefits were seized, there was nothing left for the beneficiaries. The beneficiaries appealed.

Exemption

Section 66(1) of the Pension Benefits Act exempts money payable under a pension plan from seizure. The Court of Appeal held that the appointment of an equitable receiver is a type of execution and, therefore, is precluded by section 66(1). The courts have an ability to appoint an equitable receiver under section 101 of the Courts of Justice Act when it is “just and equitable” to do so. However, the Court held that it is not just and equitable to appoint a receiver if, in so doing, a statute is circumvented. Accordingly, the Court of Appeal reversed the motions judge’s decision.

The Court also held that the beneficiaries, who had an interest in the Plan in 1994, were not given notice of the original application, but should have been. However, since there was no possibility that, under the circumstances, the old 1994 order could have any effect, the Court did not bother to set it aside.

What If

What if Lettroy had not made any beneficiary designation? In the circumstances of this case, the lump sum award would have gone to the estate of Lettroy and the WCB would have been able to seize it.

What if there had originally been no beneficiary designation, but Lettroy made the designation after 1994? In that case, we expect that the WCB would have had a case against the beneficiaries for a fraudulent conveyance.

Essence

Lettroy defrauded the WCB by abusing his position as a trusted employee. His pension benefits arose because of his employment with the WCB, who also contributed to his pension. However, the beneficiaries of the fraudster got everything and the WCB got nothing. The Court of Appeal expressed sympathy for the WCB, but was hand-tied because of the legislation.