OTTAWA--The Supreme Court of Canada has agreed to hear an appeal of a key pension decision that was favorable to plan sponsors.

The Supreme Court has agreed to hear an appeal of the Kerry (Canada) Inc. vs. DCA Employees Pension Committee decision, in which the Ontario Court of Appeal overturned a divisional court ruling that challenged several common practices in pension plan management.

In the June 2007 decision, the Court of Appeal ruled that the divisional court erred in finding that the company was not allowed to pay expenses from the fund because there was no statutory requirement that the employer pay the expenses and the language of the plan documentation did not prohibit the payment of expenses from the fund, except those paid to trustees.

In addition, the Court of Appeal said that Woodstock, Ontario-based Kerry (Canada)'s decision to introduce a defined contribution component to its plan did not create two separate pension plans, overturning the divisional court's ruling that the amendments created two plans and that cross-subsidization--the use of surplus funds in the defined benefit plan to fund contributions on the defined contribution side--was impermissible.

The Supreme Court's decision to hear the appeal has surprised pension experts, since the Court of Appeal's ruling was considered a thoughtful and informative decision."Both sides of the bar were a little shocked at this," said Mitch Frazer, a senior associate at Torys L.L.P. in Toronto and chair of the strategic communications committee of the Toronto-based Assn. of Canadian Pension Management, which represents plan sponsors in Canada. "For plan sponsors, it's clearly disappointing that there's no longer certainty in this area."

Since the Supreme Court does not specify its reasons for hearing a case, it is unclear whether the justices disagree with one or more of the tenets of the Court of Appeal decision or whether they want to provide guidance that will extend to all parts of Canada, said Ronald Walker, a senior partner in the litigation group of Fasken Martineau in Toronto who represents Kerry (Canada) in the case.

"It's a decision that has a wide-ranging impact so, it doesn't strike me as odd that the Supreme Court would deal with it," he said. "I think (the Ontario Court of Appeal ruling) was absolutely the correct decision, and I hope the Supreme Court will agree with that."

Mr. Walker said he anticipates oral arguments to occur by the end of this year.