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Pension Plans Suddenly A Source of Excitement

It is a rare day, indeed, when the phrase “bona fide pension plan” fills the hearts of men and women with excitement.  The reality is that, unless you have already retired or are fast approaching that point, you might drift off for a quick snooze during a conversation about pensions.
 
The Supreme Court of Canada, however, with its most recent proclamation on the realm of employment law, may be creating some excitement around pensions (at least amongst employment lawyers). Our country’s highest court has issued its interpretation of the phrase “bona fide” as it relates to pension plans. 
 
This, alone, may not be all that noteworthy. After all, the net result of several levels of court review and hundreds of thousands of dollars in legal fees was the Supreme Court’s conclusion that “bona fide” means a legitimate plan, adopted in good faith, and not for the purpose of defeating protected human rights. It was the context in which this conclusion was reached which was notable.
 
At the beginning of this year, B.C. became the most recent province to enact legislation rendering illegal blanket employment policies imposing mandatory retirement at age 65. The B.C. Human Rights Code had always prohibited discrimination on the basis of age. That prohibition, however, only applied to persons 19 years of age or older and less than 65 years of age.
 
This meant that employers could impose retirement (and a variety of other measures) with relative impunity against employees older than 65. It didn’t matter if the retirement was being imposed solely because the person had turned 65 - the employer was immune from statutory complaints. 
 
That practice is now past history.  Or so we thought.
 
Like the legislation in other provinces, B.C.’s Human Rights Code also contains a clause allowing discrimination (on the basis of age as well as marital status, physical or mental disability, or gender) in relation to the operation of a bona fide pension plan (or superannuation or group insurance plan). My own understanding has always been that this provision is meant to allow plan providers to protect the actuarial integrity of the plan.
 
It makes some sense, after all, to ensure that these plans can establish and maintain an asset base which is capable of funding claims. In order to achieve that result, some differentiation (in terms of participation, eligibility for payouts, calculation of individual payout entitlements, etc.) on measurable grounds such as age are probably necessary – that’s just the way insurance plans work.
 
There is now some suggestion, and will be more as a result of the Supreme Court of Canada’s ruling, that a bona fide pension plan could legitimately contain a mandatory retirement clause. If the employer has adopted such a plan then the employer might obtain the benefit of mandatory retirement even though that practice is now generally illegal in most provincial jurisdictions.
 
The Supreme Court’s decision addressed the pension plan adopted by the Potash Corporation of Saskatchewan Inc. An employee at its New Brunswick operation was asked to retire at age 65 pursuant to the mandatory retirement policy contained in Potash’s pension plan.
 
The question which made its way up through the court system was whether, as required in the New Brunswick (and other jurisdictions such as B.C.), the pension plan was “bona fide” and how that phrase is to be interpreted by the courts. The Supreme Court found that a plan must be both objectively and subjectively bona fide in that it is a legitimate plan, adopted in good faith, and not for the purpose of defeating protected human rights. 
 
In a larger sense, the Supreme Court’s decision may have served as tacit approval of mandatory retirement policies embedded in pension plans. The New Brunswick human rights statute expressly contemplates such a result. Others, including B.C.’s, don’t but, on the other hand, they don’t necessarily preclude such a result.
 
One has to wonder if, by adopting a pension plan containing a mandatory retirement clause, employers might obtain by another route a result which is now generally considered illegal. 
 
Only benefits specialists can explain why such a clause would even be required in a pension plan. What purpose is served (in a pension plan) by compelling employees to retire earlier than they might otherwise have done? Can the same purpose not be achieved in some less intrusive manner?
 
What all this means is that a door back to the era of mandatory retirement may have been opened. Time will tell how many employers will attempt to exploit that opening. In the meantime, the Supreme Court of Canada will surely have to clarify its intended message.
 
 
Robert Smithson is a partner at Pushor Mitchell LLP in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, log on to http://www.pushormitchell.com/.