Ontario Employment Terminations: Implications of New Pension 'Grow-In' Rules

Author:Mr Jason Hanson
Profession:Osler, Hoskin & Harcourt LLP
 
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Employers that sponsor defined benefit (DB) pension plans need to put in place strategies (now) to manage recent amendments to Ontario pension legislation that will extend "grow-in" benefits to all involuntarily terminated employees who meet specified eligibility criteria. Previously, grow-in benefits applied only when a pension plan was being either fully or partially wound up. These amendments will make grow-in benefits applicable to all employees terminated after July 1, 2012, but as discussed below, severance packages negotiated now may have to take these amendments into account.

What are Grow-In Benefits?

Grow-in benefits entitle certain employees, who are terminated before they meet the eligibility requirements for enhanced benefits, to become entitled or in essence, to "grow into" the enhanced pension benefits even though their employment is terminated before they meet the eligibility requirements.

Members of DB plans will qualify for grow-in early retirement benefits if their age plus service equals 55 points at the time of termination of employment. This means that if the plan provides enhanced benefits, such as unreduced early retirement to members who meet certain conditions, members who are terminated before meeting those conditions, but whose age plus service equals 55 points, can grow into and qualify for such enhanced pension benefits after their employment is terminated.

An Example

In our example, we assume a plan provides for unreduced pension if the employee completes 30 years of credited service. If an employee is terminated before achieving 30 years of service, but has 55 points, the employee "grows into" the unreduced pension based on the actual service prior to termination. If the employee had 25 years of service at termination, then 5 years after termination the employee may receive an unreduced pension based on 25 years of service.

Grow-In and Pension "Bridges"

Grow-in also applies to eligibility for bridging benefits if the employee has 55 points and 10 years of continuous employment or plan membership at termination. Bridging benefits provide a short term enhanced pension for employees who retire before the age of 65. Most government allowances (CPP, OAS, QPP, GIS) do not offer payments to the retiree until age 65. A pension "bridge" provides additional funds to the retiree during the time from retirement until the government allowances become payable, at which time the pension payments are reduced (i.e. the bridge...

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