Employee Pension Plan
When it comes to pension plans, many employees participate in an employer’s pension benefits program as part of their job’s compensation package. This often makes up a significant part of an employee’s remuneration package.
Generally, the longer the employee participates in a pension plan, the greater the potential benefit the employee receives after retirement. This is why it is very important for an employee to understand the impact on pension plan on a severance package in a termination of employment by speaking with an experienced employment lawyer in Ontario.
There are generally two main types of employee pension plans: Defined Benefit Pension Plan (less common) and Defined Contribution Pension Plan (more common).
COVID-19-related Changes to Employee Pension Plan
At the end of September 2020, Ontario Regulation 520/20 created changes to the Pension Benefits Act. In sum, the new changes provide employers with temporary relief when it comes to their obligation to fund an employee’s pension plan in certain government-registered defined benefit plans.
The most important temporary change is allowing an employer to defer (delay) one or more payments they would otherwise be required to make to a monthly pension plan, but only for the 6-month period between October 1, 2020 to March 31, 2021. This means that employers will generally be required to make up the deferred monthly pension plan payments from April 30, 2021 to March 31, 2022, in addition to their normally required monthly contributions to the employee’s pension plan during that same time period.
In order for employers to take advantage of the temporary deferral to a pension plan, they ensure they meet certain legal requirements prohibiting them from the following activities after September 21, 2020 and during the deferral period:
- declaring or paying any amount as a dividend or a return of capital on any issued or outstanding shares (or stocks) of the employer,
- buying back or redeeming any issued and outstanding shares of the employer,
- paying any form of bonus to executives of the employer,
- increasing compensation for any executives of the employer,
- repaying any principal debt or other obligation (in excess of amounts previously scheduled and agreed to before September 21, 2020),
- repaying or crediting any amount as a loan or advance to, or for the benefit of, an executive of the employer or any related person or entity of the executive,
- repaying or crediting any amount as a loan or advance to, or for the benefit of, any person or entity that beneficially owns any issued and outstanding share capital of the employer or of any related person or entity of the beneficial owner, and
- entering into any transaction with a related person or entity in the normal course of business and under terms and conditions that are less favourable to the employer than market terms and conditions.
This option for employers to temporarily defer monthly pension plan contributions will provide them with significant assistance, especially those experiencing financial challenges. However, employers should consult with an experienced employment lawyer or pension plan expert to discuss their specific circumstances, including whether they could qualify for the temporary relief measure.
Severance Packages upon Termination of Employment
If an employee’s job is terminated by the employer “without cause,” the employer must provide them with either:
- prior notice of their last day of work, during which time their salary, bonus pay, and continuing their health benefits and pension plan for at least the minimum period of time required under the Employment Standards Act, 2000 (ESA); or
- financial severance package to fully compensate the employee with their salary, bonus pay, and continuing their health benefits pension plan for the minimum period of time required under the ESA.
If the employer fails to provide the employee with either sufficient prior notice or an adequate severance package, the employee may be able to bring a claim of wrongful dismissal against the employer to obtain full severance compensation under common law.
If the employee is successful in a wrongful dismissal claim, the employer will be required to provide the employee with their full severance compensation under common law, the amount of which is determined based on the employee’s age, years of service, position and the availability of similar employment.
Impact on Employee Severance Package Pension Plan
What will be the impact of some employers’ ability to defer pension plan benefits when it comes an employee’s severance package entitlements upon termination of employment?
Among other things, employers must ensure they continue funding the employee’s pension plan for at least the minimum time period required by the ESA (or possibly a longer reasonable notice period if there is no employment contract limiting the employee’s severance entitlements to only the minimum time period). And just as importantly, employers should ensure they have “caught up” by compensating the employee for any previously deferred monthly pension plan payments under the new temporary relief provisions.
Contact Employment Lawyer
If you are an employer or employee who has been affected COVID-19 pandemic, it is important to seek legal advice as soon as possible as soon as possible. Speaking with an experienced employment lawyer will help you understand and pursue your full employment law rights in Ontario, including as to your pension plan entitlements and options in an employee’s severance package.
No matter which side you are on, our employment lawyer is ready to assist with your case. Please feel free to reach out to Bune Law at 647-822-5492.
Disclaimer: The content on this website and blog is not legal advice or legal opinion of any kind, and is only general information. It is in no way particular to your individual case and should not be relied upon in any way. The outcome of a legal matter depends on its unique circumstances, and prior successes are not indicative of future results. No portion or use of this website or blog will establish a lawyer-client relationship with the author, this law firm or any related party. Should you require legal advice for your particular situation, please fill out the form below, or call 647-822-5492, to request an initial consultation.