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Pension Consent Benefits

February-1-2008

Area Pensions

Summary

Article was originally published by Benefits Canada, February 1, 2008

"Pension Consent Benefits"

Some employers have recently taken a much closer look at their practice of providing almost automatic consent to an employee wishing to take early retirement under the company’s pension plan now that they will be facing worker shortages when baby boomers retire.

Many such early retirement provisions are structured so that when a plan member meets a specified age and years of service threshold, he or she may retire with an unreduced pension—if the company consents. Given the impact of the retirement of baby boomers on the workforce, some employers are now rethinking whether they should refuse such consent in order to keep their more experienced employees at their workplace for longer periods of time.

Whether an employer has the right to change its “consent” practices was recently considered by the British Columbia Supreme Court (and was affirmed by the British Columbia Court of Appeal). In that case, the company’s pension plan provided that employees with 30 years of service could retire prior to age 55 with an unreduced pension if the company’s consent was obtained. The company had routinely provided such consent once the employee completed 30 years of service, but changed its practice as a result of funding issues related to the pension plan, among other things. The terms of the pension plan clearly granted the discretion to refuse consent to the company.

Employees who were refused consent brought an action against the company. The Supreme Court dismissed their action on the basis that the plan provisions provided the company with such discretion, and noted that the company had never indicated that it would not exercise its discretion. Further, the company had not informed the employees that its consent would be granted, and these employees were aware of the discretionary nature of the benefit. The Court noted that the company did have to exercise good faith in exercising its discretion, and found that the company had done so in this case.

This case makes it clear that if the plan members know that the employer’s consent to the granting of a benefit is completely discretionary, it is possible for the company to reverse its past employment practices. However, changing past practices, whether related to pension or other benefits (or other terms of employment) must be considered carefully. If a company is making such a change, it needs to determine what was communicated over time to its employees, and must also examine all its relevant documents. Sufficient notice of any change, and the manner in which the change is presented, may avoid liability and the fracturing of harmonious workplace relations.

To view the article, please visit the Benefits Canada website.