Compliance June 26, 2006

Canadian Supreme Court Snubs Request for Pension Surplus

June 26, 2006 (PLANSPONSOR.com) - Canada's high court shot down last week an attempt by 112 retirees and former employees of Rogers Communications Inc. to tap into the media giant's 2002 $11 million pension surplus.
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According to the Toronto Star, the court overturned an earlier ruling by the Court of Appeal for British Columbia, which said that the retirees and former employees could demand that their pension plan be terminated. Instead, a majority of the judges said they would have to now turn to the federal Superintendent of Financial Institutions to end the plan.

The members of the lawsuit include retirees who are already into their 80s and former employees in their 40s, who would have to wait until 65 to collect minor pension payments, the Star reported.

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The case against the media company stems from its attempt since 1984 to take out surplus funds from a 1974 pension plan it absorbed when it acquired cable company Premier Communication in 1980. However, instead of adding new members to the plan to exhaust the pension surplus, Rogers closed the plan to new members in 1984.

The claim goes that the company wrongfully took $800,000 in surplus funds – a decision it later reversed – halted contributions and finally moved in 1992 to merge the plan with three other plans, the Star reported. The 112 members of the lawsuit contend they should have gotten the surplus when the plan terminated, as promised by the plan’s trust documents.

The Supreme Court says the fact that the contributions ceased in 1984 and the plan has since been closed to new members are arguments in favor of terminating the plan.

Compliance June 23, 2006

Court Throws out Hedge Fund Registration Rule

June 23, 2006 (PLANSPONSOR.com) - The US Court of Appeals for the District of Columbia Circuit has determined that a Securities and Exchange Commission (SEC) rule requiring certain hedge funds to register with the agency cannot stand as is.
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The Wall Street Journal reports that the appellate court said the SEC failed to justify its definition of “client” in the new rule and that its interpretation “falls outside the bounds of reasonableness” and comes close to violating “the plain language” of the 1940 Investment Advisers Act.

The rule imposed by the SEC effective February 1 requires managers that run hedge funds with at least 15 US clients to register as an investment adviser with the SEC. The rule requires advisers to give the SEC basic information about themselves and submit to spot inspections (See SEC Imposes Hedge Fund Registration ).

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At issue with the appellate panel was the meaning the SEC attributed to the word “client.” (See  Appellate Court Pondering SEC Hedge Fund Registration Future ) Regulation existing at the time the SEC was pondering the rule allowed hedge funds to avoid registration by defining each hedge fund they manage as a separate “client.” The new rule requires each hedge fund investor to be counted as a client, forcing most large managers to register with the SEC.

The court opinion said the SEC did not show why the new rule was needed or adequately explain “how the relationship between hedge fund investors and advisers justifies treating the former as clients of the latter,” according to the news report.

The appellate court vacated the rule and remanded it back to the SEC for review. Its opinion is here .

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