How Pensions Will Be Key in the Termination of Ontario Employees

How long has it been since you reviewed your pension plan? Are you familiar with the most important change to Ontario’s Pension Benefits Act that became effective in July 2012? For the convenience of our clients, EPC will summarize the application of “grow-in” rights to individual terminations from employment with provincially regulated employers.

What Are “Grow-In” Rights?

Grow-in rights entitle eligible employees to early retirement or bridging benefits to which they would not otherwise be entitled at the time of their termination from employment.

For example, suppose your pension plan currently imposes higher early retirement reductions if an employee terminates employment before age 55. Under the new grow-in rules, an eligible employee will be deemed to continue in employment until age 55 for the purpose of calculating the early retirement reduction. This will mean a more generous early retirement pension benefit.

Jointly sponsored pension plans, such as OMERS and the Ontario Teachers’ Pension Plan, and multi-employer pension plans can opt out of providing grow-in rights to their plan members. Single-employer pension plans, however, do not have that option.

Who is Eligible?

Grow-in rights apply to most employer-initiated terminations of employment, even certain “cause” terminations. Grow-in rights will not apply to a termination of employment only if the employee’s willful misconduct, disobedience or willful neglect of duty is  not trivial and has not been condoned  by you, the employer.

Valid employee-initiated resignations from employment do not activate grow-in rights. An employee who has received working notice of termination may resign and end the employment relationship early without forfeiting grow-in rights.

The termination of a “construction employee,” or a temporary layoff, both as defined under the Employment Standards Act of 2000, do not trigger grow-in rights. If a lay-off becomes permanent, grow-in rights are triggered if the employee ceases pension plan membership.

What Is The Possible Impact On Your Termination Practices?

The legislative nature of grow-in rights creates a fresh set of challenges. The true cost of a termination from employment where grow-in rights are involved includes not only the cost of the statutory minimum and applicable common law notice payments payable directly by the employer, but also the indirect cost to your organization of the grow-in enhancements payable from the pension fund. For every extra dollar paid out of the pension fund  to a terminating employee, another dollar must be contributed to the pension fund  to maintain its funding.

What Can You Do?

The first thing you should do is review your pension plan design to determine whether and how grow-in applies. Whoever processes terminations in your organization needs to understand the new grow-in regime and be conversant with the rules when structuring and settling terminations. They will need to be able to calculate the grow-in cost for each termination so they can design an appropriate settlement offer and release. You may want to analyze whether changes to your pension plan can reduce the cost of grow-in as well as any restrictions on making such amendments.

Did this help? If not, please feel free to contact Employment Professionals Canada for a more in-depth explanation. We’re happy to help!