earlier post, I provided an overview of the different ways that
some plan sponsors are looking to exit the defined benefit (DB)
world. In this post I consider the most drastic and complete way to
"restructure" a DB plan – through a pension
plan wind up.
There are pros and cons to a voluntary plan wind up by an
employer. On the pro side, a wind up is relatively quick, and may
be less risky compared to maintaining frozen, legacy DB benefits
for decades and continuing the ongoing DB funding risks. On the
other hand, wind up and settlement costs can be expensive and
exiting a DB plan can be problematic for older, longer service
An employer's ability to unilaterally wind up a plan is
contained in s.68(1) of the Ontario Pension Benefits
Act (the PBA) which requires notice to be remitted to any
trade union, the Ontario Superintendent of Financial Services, and
any person entitled to payment from the pension fund.
Remember that if a plan is collectively bargained, the
employer's ability to wind-up the plan may also be limited by
the language in the collective agreement.
If a plan is in a deficit position at the time of the wind up,
the employer will be required to fund up the plan over the five
year amortization period prescribed for terminal funding. Further,
for eligible Ontario and Nova Scotia plan members, these wind up
liabilities will include "grow-in" benefits which must
also be funded.
Under these grow-in rules, Ontario and Nova Scotia members with
age and service totalling 55 or more points at the time of the wind
up will become entitled to any subsidized ancillary benefits that
may be in the plan, even though such members do not meet the
eligibility conditions set out in the plan terms. For example, if
the plan includes an early retirement benefit, the member could
grow into it, even though he or she is not entitled to it at the
time of the wind up. The cost of these grow-in benefits can be
expensive, and, therefore, prior to winding up, employers should
take into account any grow-in costs that will be triggered.
While changes to the PBA introduced in Bill 236 eliminate grow-in benefits in the
context of partial wind-ups, effective July 1, 2012, grow-in will
still apply to:
full plan wind ups; and
all individual, involuntary employee terminations other than
those dismissed for wilful misconduct, disobedience or wilful
neglect of duty.
The determination to wind up a plan will largely depend on the
funded status of the plan and the employer's ability to
eliminate the plan deficit on wind-up.
Stay tuned for Part III, where I will examine pension plan
James Fera advises on legal issues relating to
federally and provincially regulated pension and employee benefit
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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