In a decision released this month, the Saskatchewan Court of
Appeal ruled that members of the Saskatchewan public service
pension plan are not entitled to indexed pension benefits, beyond
what was already provided for in legislation: May et al.
v. Government of Saskatchewan 2013 SKCA 11.
The plaintiffs who were representative plaintiffs in a class
action on behalf of members of the pension plan, alleged that the
government of Saskatchewan had breached employment contracts with
its employees and had also breached its fiduciary duties toward the
members in failing to fully index the pensions payable from the
The pension plan for public servants in Saskatchewan migrated
from a defined benefit plan to a defined contribution plan in
1977. However, members of the plan at that date could elect
to continue participating in the defined benefit plan. It is
a very rich plan, providing a benefit equal to 2% of a member's
final average earnings, multiplied by years of service.
The benefits in the plan were not indexed originally. The
government later indexed benefits on an ad hoc
basis. Over time, the pension benefits lost a fair bit of
purchasing power due to the lack of full indexation. The
public service union attempted on several occasions to bargain
cost-of-living increases to the pension benefits, but had not
succeeded. Legislative changes were later made in 1997 to
provide protection for 70% of increases in the cost-of-living.
The plaintiffs argued that the government had promised to treat
the members of the plan "equitably and fairly, having regard
to other employees of the government and its Crown
corporations", which arguably included providing fully indexed
pensions. The trial judge held against the plan members,
because they had not established a contractual right or a breach of
fiduciary duties by the government:
"These plaintiffs, and those they seek to represent,
have developed a construct of the kind of pension plan that they
now wished they had. However, they have not established, by
the evidence presented in this case, the legal foundation required
to support such a conclusion by this Court on a balance of
probabilities. ... the court is required to rule upon
legal, including contractual, rights, not upon expectations - -
upon legal entitlements not aspirations."
The court of appeal agreed with the trial court's
findings. The plaintiffs could not point to any specific
written document that granted a right to additional
indexation. The court found that they "were able to
describe their sense of the 'implied term' only in the
broadest of language". Oddly, the plaintiffs argued
before the court of appeal that the trial court erred by not
attaching more weight to a 1996 retirement booklet that included
the following question and answer:
"Is the pension benefit indexed?
The Plan is not indexed. The
government of Saskatchewan annually reviews pensions paid to
superannuates and may make discretionary increases. An
increase cannot exceed the Consumer Price Index (CPI) for a given
period." (underlining added)
This case illustrates that a "pension promise" can be
derived from many sources. Plan members will naturally seek
to assert a case based upon the most favourable wording and in the
case of ambiguity or inconsistency between pension documents or
information, courts will often resolve the ambiguity or
inconsistency in favour of the plan members. The members in
this case, however, were unable to put forth any convincing
evidence that the employer had promised fully indexed benefits.
Courts will look to not only the pension plan text and employee
booklet, but also to presentation materials, pensioner statements,
summaries in actuarial reports and other documents and also to oral
representations to determine the specific details of what pension
benefit the members have been promised. This is consistent
with the Schmidt v. Air Products decision of the Supreme
Court of Canada from 1994.
Employers, administrators, actuaries, insurance companies and
others involved with the administration and communication of
pension plans need to use the utmost care and diligence to ensure
that pension benefits are described accurately, consistently and
clearly. This applies equally to defined benefit and defined
contribution pension plans, as well to non-pension retirement
savings plans, equity-based plans such as stock option and stock
purchase plans and group benefit and post-retirement benefit
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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