Pensions & Benefits Law : Canada Pension & Benefits Lawyers & Attorneys : Osler Hoskin & Harcourt Law Firm: Post-Employment Benefits & Defined Benefit Plans : Toronto, New York

Does your U.S. group health plan have separate deductibles for medical benefits and mental health benefits? Even if they are the same dollar amount, new regulations provide that these plan provisions will violate federal benefit parity requirements.

Sponsors of U.S. group health plans who have been preoccupied with COBRA premium subsidies and new state COBRA requirements may have missed the October 3, 2009 effective date of new mental health and substance abuse benefit rules. (They apply as of January 1, 2010 for non-union calendar year plans.)

While U.S. law does not require employers to provide mental health or substance abuse benefits to their employees, employers who include these benefits in their U.S. medical plans are subject to a host of new requirements under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008  (PDF) (the Act). The Act expanded parity requirements of 1996 legislation, which required that annual and lifetime limits for mental health benefits could not be more restrictive than the limits that applied for medical and surgical benefits, to also require parity in financial restrictions such as deductibles, co-pays, out-of-pocket maximums and treatment caps, such as visit limits, and to include substance abuse benefits.

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Trustees and other fiduciaries are often described as having to act fairly in discharging their responsibilities to pension and health and welfare plan members. While most people have a strong sense of what is generally fair and unfair, the concept becomes more complicated when it is applied to the interests of a single member relative to a group. What may seem fair to an individual may be unfair to the group as a whole. In dealing with such situations, fiduciaries must take care to act honestly and in a way that is even-handed, having regard to what is fair and reasonable for the entire group of beneficiaries for whom they are responsible.

A recent decision of the Nova Scotia Supreme Court in Downey v. Cranston provides a useful example of this principle.

Terrence Downey, who had worked as a non-union longshoreman for 26 years on the Halifax waterfront before becoming a member of the union in July 1991, became permanently disabled following a workplace injury in December 1991. Mr. Downey claimed a disability pension under the Halifax Port ILA/HEA Pension Plan (the Pension Plan) and benefits under the Halifax Port ILA/HEA Health and Welfare Trust Fund Benefits Plan (the Welfare Plan), both of which he had become eligible to join as a union member, subject to satisfying certain minimum work requirements (300 hours of work in the year for the Pension Plan and 450 hours of work for the Health and Welfare Plan).

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In the last two years, four provinces (Alberta, British Columbia, Ontario and Nova Scotia) and the Federal government have embarked on extensive pension reviews. While the focus of these reviews, for the most part, was on how each jurisdiction’s pension standards legislation could be improved, the reviews also considered increasing pension plan coverage for employees who do not have access to an employer sponsored pension plan. There has been some activity in the new year on this latter initiative, most recently with the release of the British Columbia Ministry of Finance’s consultation paper “Mechanisms for Expanding Pension Coverage and Retirement Income Adequacy in Canada” (PDF).

The consultation paper follows on the heels of the paper of the Steering Committee of Provincial/Territorial Ministers on Pension Coverage and Retirement Income Adequacy, “Options for Increasing Pension Coverage Among Private Sector Workers in Canada”, (PDF) which analyzed two proposals for increasing pension coverage in Canada through a national pension plan, namely: (a) creating a voluntary, defined contribution structure either added as an additional “tier” to the Canada Pension Plan or as a stand-alone plan; and (b) expanding the existing mandatory defined benefit structure of the Canada Pension Plan either by increasing the replacement rate or the upper limit on income on which the pension is calculated or both.

The British Columbia consultation paper also explores two additional options. First, the consultation paper considers modernizing current pension standards legislation to improve flexibility in pension plan design, for example, by permitting an entity that is not an employer, such as a professional association, to sponsor a pension plan. Second, the consultation paper considers amending the Income Tax Act to encourage increased retirement savings under current registered retirement savings vehicles, for example, by allowing individuals to repay amounts withdrawn from registered retirement savings plans in times of financial hardship. The consultation paper further notes that a blended approach, combining two or more of the four options, could be desirable.

The landscape for pensions and retirement savings in Canada may be changing if these recommendations are acted upon. If and when changes are made, it will be necessary to review how existing employer sponsored arrangements integrate into such landscape.

Comments on the British Columbia consultation paper are being sought by April 1, 2010.

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Paul Litner's post Plan Communications: The New Battleground for Pension Disputes highlighted recent cases, which reinforced the need for employers to make accurate and timely pension plan member communications a top priority in plan governance and risk management. The recent Re Greyhound Canada Transportation Corp. and Amalgamated Transit Union arbitration, where the employer was found liable for failing to provide commuted value calculations to a member, is yet another case which highlights this need.

In this case the member in question had requested information on the commuted value of his pension with a view to retiring. However this information was never provided and he died the following year. The spousal benefit on his death was approximately $185,000; whereas, had he elected prior to his death to retire and take the commuted value of his pension he would have received approximately $261,000. The union then launched a grievance requesting that the differential between these amounts be paid to the spouse.

Based on his review of the case law, the arbitrator found that Greyhound was under a fiduciary duty to provide employees with the information in its possession “affecting their financial futures”, including commuted value calculations for those employees facing retirement. In addition, the arbitrator noted that the parties had negotiated a Letter of Understanding, dated January 1, 2008, which required Greyhound to provide the commuted value information. The Letter provided: “Effective January 1, 2008 an employee will once in their career and at retirement be provided with pension value information. This would include the commuted value.”

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The Financial Services Commission of Ontario announced that effective March 31, 2010 pension plan administrators will be able to file Annual Information Returns (AIRs) electronically. The electronic filing method will be optional in that plan administrators will still be permitted to file AIRs in paper format should they so chose.

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