Hudson’s Bay and its former employees are bracing for a potential legal battle over a pension plan surplus of nearly $180 million, according to three sources familiar with the behind-the-scenes negotiations.
The now-defunct department store has substantial funds remaining in its decades-old pension plan, which was wound up last September, even after accounting for all expected benefit payments, sources said. The Star is not naming the sources because they are not authorized to speak on the issue.
The millions of dollars could represent a windfall for thousands of the retailer’s former employees, depending on their eligibility for the surplus, yet to be determined by the court.
At the same time, Hudson’s Bay, which closed all its stores last June during proceedings under the Companies’ Creditors Arrangement Act (CCAA), says in court documents that it is “asserting a claim of an interest in the pension surplus for the benefit of its creditors.”
If any, the surplus will likely be used to repay the retailer’s senior creditors — loan companies Restore Capital and Pathlight Capital — as well as its landlord, Cadillac Fairview, who are owed a few hundred million dollars together.
The retailer is expected to return to court on Thursday to seek an extension of creditor protection until June 30, allowing it to seek the appointment of representative counsel for the pension surplus matter, among other things.
“Unifor members and retirees have a clear right to share in the pension surplus, and Unifor will be advocating on their behalf to assert this right as this matter proceeds,” said Lana Payne, the national president of Unifor, representing over 500 Hudson’s Bay employees who were laid off last year.
A source familiar with the matter told the Star that negotiations are expected in the coming months between Hudson’s Bay’s lawyers and counsel for employees, once they are appointed, to determine how the funds will be allocated. If talks fail, the court will rule on the entitlements.
The source said they expect eligible pensioners to receive at least some portion of the surplus, which is a “windfall” beyond their full pension benefits.
“The employees will get a nice additional payment, which they weren’t necessarily expecting,” the source said. “It’s just a question of who is entitled to what percentage.”
Hudson’s Bay established a registered pension plan in 1961 and later merged it with three separate pension plans: the Dumai Plan, an executive plan, and a Zellers Inc. pension plan. The Dumai Plan was originally created for former employees of Simpsons, which Hudson’s Bay acquired in 1979, and was later expanded to include certain Zellers and Kmart employees.
As of Dec. 31, 2024, the pension plan had some 4,000 active and inactive members with defined benefit entitlements and about 17,000 active and inactive members with defined contribution entitlements.
Hudson’s Bay has been in consultation with its secured lenders and a court-appointed monitor to develop a process addressing the pension surplus. When the retailer filed for creditor protection in March, it owed $950 million to nearly 1,900 creditors, including lenders, landlords and fashion brands, most of whom have recovered little to no money so far.
The $180 million in the pension surplus exceeds any proceeds Hudson’s Bay has recovered from the sale of its assets, including store leases, the royal charter document (which sold for $18 million to the Thomson and Weston families), its art collection and its intellectual property, which was sold to Canadian Tire for $30 million.
The lawyers representing the retailer and the court-appointed monitor Alvarez and Marsal did not respond to the Star’s request for comment.
Level Chan, a pension lawyer in Halifax and a partner at Stewart McKelvey, told the Star that entitlement to any pension surplus — whether shared between the employer and plan beneficiaries or allocated entirely to one party — ultimately depends on what is set out in the original pension plan documents and trust agreements.
“There were many cases in the past where there have been disputes over the entitlement of a surplus,” Chan said.
In the case of Hudson’s Bay, Chan said Canadian courts have previously examined certain sub-plans and issued rulings — one siding with the employer and another with employees — on entitlement, which will serve as key precedents in the case now under review.
In 2008, some Hudson’s Bay workers who were transferred to the retailer North West Company in a 1987 sale took their former employer to court, arguing that a share of the pension surplus should be transferred to North West. The Supreme Court of Canada found that employees had no rights over the surplus, as the original document expressly limited their rights to receiving their pension benefits.
However, in a 2011 case involving former Simpsons employees in the Dumai pension plan, the Ontario Court of Appeal found the plan document of Dumai created “an irrevocable trust, over all the assets in the pension trust fund, for the exclusive benefit of the employees.”
The determination of entitlements “is often a complicated analysis of the history of the plan, as the surplus ownership language that may exist in a current plan text or trust agreement has to be traced back to its origination to determine if that current language was validly adopted,” said Susan Philpott, a partner of Goldblatt Partners LLP.
Chan said the issue is further complicated by whether employees took payouts at retirement, and by plan type, as defined contribution members generally aren’t eligible for defined benefit surplus.
Last June, some Hudson’s Bay Dumai pension plan retirees launched a class action application, seeking surplus funds from the plan’s wind-up, arguing prior court rulings entitle them to assets now held by plan administrators and trustees.
“HBC is not paying severance pay and other amounts that it owes to the terminated employees and retirees, causing many hardships,” the class action application filed by Koskie Minsky LLP read.
Koskie Minsky and Ursel Phillips Fellows Hopkinson LLP, who represent Hudson’s Bay employees on issues outside of pension surplus, declined to be interviewed for the story.
