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

In this week’s Budget announcement, the Ontario government confirmed that work continues on its pension reform initiatives. While a number of the government’s announcements focus on the administration, investment and funding of single and multi-employer pension plans, the government also reiterated its desire to make changes at the “macro” level through support of modest phased in CPP enhancements and its ongoing investigation of new forms of retirement vehicles to improve workforce coverage in a cost effective manner.

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As we reported in an earlier post, the Canadian Association of Pension Supervisory Authorities (CAPSA) published a consultation paper in late 2009 entitled “The Prudence Standard and the Roles of the Plan Sponsor and Plan Administrator in Pension Plan Funding and Investment”. Following up on this consultation paper, CAPSA recently released draft guidelines on funding policies (Funding Guideline) and prudent investment practices (Investment Guideline). Comments on these guidelines will be accepted by CAPSA until June 1, 2011.

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The Supreme Court of Canada has affirmed decisions by the British Columbia Supreme Court and Court of Appeal that provisions of the Public Service Superannuation Act (PSSA) and the Canadian Forces Superannuation Act (CFSA), which reduce a supplementary death benefit (SDB) based on the member’s age at the time of death, do not infringe section 15 of the Canadian Charter of Rights and Freedoms.

In Withler v. Canada (Attorney General), a class proceeding was initiated by the surviving spouses of deceased members entitled to benefits pursuant to the PSSA and the CFSA. The spouses received a SDB upon the death of the member. The SDB was reduced due to the age of the member at death, pursuant to provisions in the PSSA and the CFSA which permitted a 10% reduction in death benefits for every year the age of the plan member exceeded 65 (PSSA) or 60 (CFSA) at the time of death. In advancing their claim, the spouse’s argued that the SDB reduction created a distinction and imposed a disadvantage on member spouses based on age, contrary to s. 15(1) of the Charter.

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Only one day has passed since the Quebec Finance Minister Raymond Bachand delivered the 2010-2011 budget speech and much has already been said in the media about Quebec’s proposal to implement “Voluntary retirement savings plans” (VRSPs).

The government is planning to amend Quebec’s legislative and regulatory frameworks to allow a new type of retirement savings vehicle for those who are not eligible for an employer-sponsored pension plan. VRSPs would essentially be based on the framework for “pooled registered pension plans” (PRPPs) that was announced by the federal government last December.

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In August of 2010, Investment News ran the headline: “Employers Slow to Restore 401(k) Matching Contributions.” What a difference a few months can make! On February 23, 2011, Reuters reported that according to Fidelity Investments, 55% of plan sponsors who reduced or eliminated their matching contributions in the recession had either restored them or plan to do so this year. The percentage rises to 71% for large companies. Confirming that employer contributions are on the rebound, a similar report by the Profit Sharing Council of America reported that 39.3% of surveyed employers who had suspended contributions have restored them and an additional 37.8% plan to do so within the next 6 months.

We clearly see a trend, but just as U.S. rules dictate how to suspend contributions, technical qualification requirements need to be satisfied when contributions are restored. Following the rules now can avoid future audit problems or the need to file under a voluntary correction program.

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Where contributions to pension or group benefit plans are based on an employee’s earning or hours worked, at first blush it seems attractive to argue that if the employee is on an unpaid leave of absence, the employer has no contribution obligation. Three recent arbitration decisions have rejected this argument - Employees of the Hunter Amenities International Ltd. v. Hunter Amenities International Ltd., Jungbunzlauer Canada Inc. v. United Food and Commercial Workers Canada Local 175 and most recently, Canadian Red Cross Society Community Health Services Ontario Zone v. Service Employees International Union Local 1 Canada.

Although these cases took place in the unionized environment, since the decisions were based on the provisions of the Ontario Employment Standards Act (the ESA) and not the collective agreements, the reasoning may potentially apply to non-unionized employees as well. 

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