Age Discrimination in Pension Plans

This article was originally published in Blakes Bulletin on Pension & Employee Benefits in September 2005

Article by Scott Sweatman, ©2005 Blake, Cassels & Graydon LLP

Age discrimination in the pension world comes in various forms, including mandatory retirement provisions, timing of receipt of benefits and disparate employer contributions, to name a few. While contrary to human rights principles, federal and provincial laws create exemptions for aged-based discrimination that is incidental to a pension plan. Employers designing and administering pension plans can also rely on a Supreme Court of Canada (SCC) case providing basic guidelines on when age-discriminatory practice is acceptable.

Other than in Ontario, Québec and the Yukon, human rights legislation in each province and territory provides that prohibitions against age discrimination do not apply to the “operation of a bona fide retirement or pension plan.” In some legislation, the phrase “bona fide” is replaced with “genuine” or “good faith,” but the concept is the same. Courts and other adjudicative bodies have said this exception applies where the discriminatory practice:

• is imposed in good faith;

• is based upon sound and accepted pension industry practice; and

• there is no practical alternative to the discriminatory practice.

These three principles arise from the SCC’s decision in Zurich Insurance Co. v. Ontario (Human Rights Commission). Any discriminatory practice based on age in the pension context in these provinces must pass muster under this test.

Legislative Variations Across Canada

In most provinces, employment standards and pension laws do not contradict human rights legislation. They are largely silent on discriminatory practices involving pensions. Alberta Finance, however, has published a policy bulletin to supplement its provincial enactment that states a defined contribution formula must be acceptable to the Superintendent of Pensions and that a defined contribution policy that increases rates by steps based solely on age will not be permitted.

Yukon human rights legislation does not expressly address age discrimination in pension plans, but includes very broad language providing that discriminatory treatment will not be considered discriminatory for the purposes of the human rights legislation if there are “other factors establishing reasonable cause for the discrimination.”

Ontario’s legislation sets out specific allowances for age discrimination in pension plans through various provisions found in human rights, employment standards and pensions legislation. Ontario’s Human Rights Code, for example, grants every person the right to equal treatment with respect to employment without discrimination because of age. However, Section 25(2) states this right will not be infringed by an employee pension plan that complies with the Employment Standards Act (ESA) and its regulations.

Under the ESA, an employer may not provide or offer a benefit plan that treats employees differently based upon age, except in prescribed circumstances. Under the regulations, employer contributions to a “unit-benefit” or “defined benefit” pension plan may vary based upon age. Other forms of permitted differentiation relate to the rates of voluntary additional contributions to a pension plan and the rates of contributions that an employee is required to make to a “money-purchase” or “profit-sharing” pension plan.

Additionally, the prohibition in ESA’s subsection 44(1) does not apply to a differentiation that relates to the rates of contributions by an employer to a money purchase or profit-sharing pension plan: i) when the employer transfers the assets from a unit-benefit or defined-benefit pension plan to the money purchase or profit-sharing pension plan; and ii) if the differentiation is made to protect employees’ pension benefits from being adversely affected by the transfer.

Finally, the Regulations permit differentiation relating to benefits payable to employees, if the Pension Benefits Act (Ontario) allows the differentiation or is inapplicable to the pension plan. The Regulations clarify the stipulation that a differentiation be determined on an actuarial basis applies only to the exemptions relating to employer contributions to a unit-benefit or defined-benefit plan and to an employer’s transfer of assets to a money-purchase or profit-sharing plan.

Québec’s human rights legislation appears to deem age distinctions in a retirement or pension plan to be non-discriminatory if the distinction that is made is based upon actuarial data. Québec’s stance on age discrimination in the context of pension plans is in its Charter of Human Rights and Freedoms, which articulates every person’s right to full and equal recognition without distinction, exclusion or preference based on age, except as provided by law, amongst other exceptions.

Section 20.1, however, deems a distinction based on age in a retirement or pension plan to be non-discriminatory where the distinction is warranted and “the basis for it is a risk determination factor based on actuarial data.” This provision may serve as the basis for any number of discriminatory circumstances. In light of the express language, it is unclear if any of the principles in Zurich would apply to a scenario relating to the Québec statute. The Zurich test focuses on determining whether a pension plan is “bona fide” pursuant to the relevant provincial and territorial statutes. The Québec legislation does not appear to raise this inquiry.

Federal Legislation

Federal human rights legislation also expressly permits discrimination based on age, in some forms, in the pension context. It is not a discriminatory practice, for example, if the terms and conditions of any pension plan provide for the compulsory vesting or locking-in of pension contributions at a fixed or determinable age in accordance with the federal pension legislation, the Pension Benefits Standards Act, 1985.

The Canadian Human Rights Act includes age as one of the prohibited grounds of discrimination. Section 7 states it is a discriminatory practice to differentiate adversely in relation to an employee in the course of employment. Paragraph 15(1)(d), however, articulates an exception. It is not a discriminatory practice if the terms and conditions of any pension fund or plan established by an employer provide for the compulsory vesting or locking-in of pension contributions at a fixed or determinable age in accordance with sections 17 and 18 of the Pension Benefits Standards Act, 1985. Section 18 provides further exemption for any such pension fund or plan as may be prescribed by regulation by the Governor in Council.

The Case Law

Some tribunals have considered the meaning of “bona fide retirement or pension plan.” In the 1996 case of O’Neill v. Canadian Paperworkers’ Union, the British Columbia Council of Human Rights used the test developed by the SCC in Zurich to determine if a survivor benefit that was dependent upon a minimum retirement age was discriminatory. According to the Council, to be a “sound” pension industry practice, it must be desirable for the purpose of achieving a legitimate objective and it accepted the expert testimony of actuaries regarding pension practice, pension design and actuarial matters.

With regard to whether there was any practical alternative to the discriminatory element of the plan, the Council concluded extending the benefit to employees of all ages, if they achieved a minimum service level, would not be practical or reasonable.

There have been attempts to revise the Zurich test. In 2004’s Scott v. New Brunswick, the New Brunswick Labour and Employment Board dispensed with the Zurich test in favour of a Meiorin test formulated by the SCC in British Columbia (Public Service Employee Relations Commission) v. British Columbia Government and Service Employees Union.

Scott was a mining employee forced to retire at age 65 by mandatory provisions in the company’s pension plan. The three-part Meiorin test was formulated to facilitate a determination of whether discriminatory circumstances nevertheless constituted a bona fide occupational exception, rather than whether a pension plan with discriminatory provisions in regards to age is still a bona fide pension plan. The Board’s decision was overturned by the province’s Court of Queen’s Bench in 2005, where it re-established the test in Zurich as the authority to be applied in considering the bona fides of a pension plan discriminating based on age.

Zurich is still the leading Canadian authority for age-related claims of discrimination in pensions. And, generally, federal and provincial governments can be expected to maintain their legislative exemptions for age-based discrimination, in certain forms, incidental to a pension plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.