Pensions and Benefits: The Importance of Good Drafting

May 13, 2019 | Kim Ozubko

Clear and concise drafting are key to the administration of any pension or benefit plan. In this post, we review two recent cases which highlight the challenges employers may face when plan terms are not clear.

Ontario Superintendent of Financial Services, Notice of Intended Decision, Pension Plan for Employees of Hewlett Packard Enterprise Canada, December 28, 2018

In this case, the issue under consideration was whether a lump sum payment of unused vacation time on termination of employment should be included in the determination of final average earnings under the pension plan. The plan administrator did not include the lump sum payment when it calculated a retired member’s pensionable earnings. The retired member argued that the lump sum payment should have been included in the calculation.

Under the terms of the plan, “Final Average Earnings” for a full time employee was determined based on the remuneration paid to a plan member including “base pay” (which term was not defined) and eligible commissions but “excluding bonuses, overtime pay, and any other forms of compensation.” Vacation pay was not expressly excluded from the definition of Final Average Earnings.

The Ontario Superintendent of Financial Services (the “Superintendent”) found that under the terms of the plan, “base pay” included vacation pay. According to the Superintendent, “vacation pay is included in “base pay” because it is not excluded from…the definition of Final Average Earnings” and because the Employment Standards Act, 2000 (Ontario) “provides that vacation pay accrues during employment.”[1] As a result, the Superintendent issued a notice of intended decision to make an order that the administrator include vacation pay when calculating the retired member’s final average earnings under the plan. The administrator has requested a hearing before the Financial Services Tribunal objecting to the decision.

Service Employees International Union, Local 1 v. Bluewater Health, 2019 CanLII 25975

The question at issue in this case was who was required under the terms of the collective agreement to pay benefit plan premiums for certain retirees.

The collective agreement provided that the employer “will provide equivalent coverage” for certain retirees and that the employer “will contribute the same portion towards the billed premiums of these benefit plans as is currently contributed by the [employer] to the billed premiums of active employees.”

The union argued that the provisions in the collective agreement required the employer to pay the “same percentage” of the retiree plan premiums as it paid for active employees for the same benefit. In other words, if the company paid 100% of the premium for an active employee’s benefit, it should pay 100% of the premium for the retirees. The arbitrator agreed with the union and found that the use of the term “portion” in the collective agreement, although somewhat ambiguous, meant a percentage part of the whole. The arbitrator rejected the employer’s argument that it was only required to pay the same dollar figure for the benefit.

Key Takeaways

Although the decisions in both cases are dependent on the specific terms of the applicable documents, the cases are a reminder to plan administrators of the importance of clear and concise drafting of pension and benefit plan provisions.Where terms are ambiguous and open to interpretation, employee and member challenges may result.

For further information on best practices in pension plan communications, please see this article, or contact Kim Ozubko at kozubko@millerthomson.com or (416-597-4338), or subscribe to our A.M. Pension Blog and webinar series to stay informed on the latest developments.


[1] para 9.

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