Legal Nature of the Pension

AuthorAri Kaplan/Mitch Frazer
It is dicult to pigeonhole pension law and regulation. Legal regimes
that import a regulatory component are often described by reference
to one of two broad purposes: one, statutory schemes t hat deliver a
social program by either confer ring a social benef‌it or regulating socia l
behaviour, or two, schemes that regulate economic behav iour with the
objective of providing stability and fa irness in capital m arkets or cor-
recting a perceived imbalance in those markets. These conventional
and sometimes competing assumptions collide in the case of pensions.
On one hand, the establishment and maintenance of an employ-
er-sponsor ed pension pl an is a volunt ary or negot iated deci sion and,
therefore, a pension plan is part of the pr ivate law system derived from
contracts. On the other hand, prov incial and federal pension legislation
are products of social policy building. The original Pension Bene f‌its
Act required employers to establish workplace pension plans for their
employees. These were policy initiatives that downloaded onto the pri-
vate sector the delivery of a social program, regulated by government.
Pension law has evolved from that initia l premise.
Pension law is framed by the dichotomy between two rationa les:
one, that the law should defer as much as possible to private law con-
siderations underlying the common law, contractual, and property
rights of employers and employees. The other rationale is that pen sion
law should ref‌lect its deliberate occupation within the third pillar of
Canada’s state-supported retirement deliver y system. These legal prin-
ciples ask us to acknowledge the public policy role of pension plans
contributing toward a minimum level of sustenance following an
employee’s working life. This dichotomy has produced a fertile breeding
ground for pension law jurisprudence and leg islation as it has evolved
since its genesis in the 1960s.
1) Statistical Overview
It is often helpful in social sciences a nd humanities (and law) to begin
a textbook with a brief stat istical overview of its subject matter. The
changing stati stics over the years concerning pension plan membership,
coverage, plan type, and regi stration mobilize the law and contextuali ze
the applicable legal and regulatory pri nciples.
a) Introduction
On 1 January 2017, more than six million Canadian workers partici-
pated in 16,619 registered employment-based pension plan s.1
b) Plan design type
There are two basic type s of pension plan design: def‌ined benef‌it (DB)
and def‌ined contribution (DC).2 A typical DB pension plan promises
a pension benef‌it at retirement determined by a formula t aking into
account a f‌ixed or tiered percentage multiplied by the employee’s
length of service in t he plan and their f‌inal or career average salary
at retirement. Employer contributions to a DB plan are usually based
1 Statistic s Canada, Tabl e 11-10-010 6-01 Registered pension plans (R PPs), active
members an d market value of assets, by contri butory status, Annua l, online:
pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid= [Tab le 11-10 -
0106- 01]. On 1 January 2000, the re were 15,557 pension plan s covering 5.3 mil-
lion workers, and by 2011, there were 19,463 pension plans cove ring almost 6
million workers. S ee Statistics Cana da, Pension Plans in Canada Januar y 1, 2000,
Cat No 74-401-XPB (Ottawa: Ministr y of Industry: Income Stati stics Division,
Pensions and Wealth P rogram, 2001) at 16 [Pension Plans in Cana da January 1,
2000] and Statistics C anada, Canada’s Retireme nt Income Programs, 2006 Ed, Cat
No 74-507-XCB (Ottawa: Minist ry of Industry: Income Stat istics Division, 20 06)
[Canada’s Retirement In come Programs, 2006].
2 There are numerous v ariations on the se two types, inc luding Target Benef‌it Plans
and other “hybrid” plan s. See Chapter 3, Section B(2) for more on plan design.
Legal Nature of t he Pension 3
on actuarial recommend ations in which the actuary makes a number
of assumptions about the plan’s future exper ience, demographics, and
salaries, among other things. In a DB plan, the benef‌it, not the contri-
bution, is def‌ined.
In a DC pension plan, also called money purchase plans, contribu-
tion rates are f‌ixed in the pla n text and are usually ba sed on a percent-
age of the member’s earnings, a speci f‌ic dollar amount, or a specif‌ied
number of cents per hour worked. Most DC plans produce a pension
benef‌it at retirement based on the fund s available in each employee’s
account. Sometimes employee DC accounts are based on the aggregate
fund rate of return. In a DC plan, the contr ibution, not the benef‌it, is
On 1 January 2017, there were 6,400 DC plans and 9,304 DB plans
registered in Canad a, and 67 percent of all pension plan members in
Canada part icipate in DB plans. Most employees covered by DB plans
participate in large pen sion plans.3
More than two-third s of all employees in DB plans work in the
public sector,4 while nearly 87 percent of employees in DC plans work
in the private sector.5
Because of the historically high membership levels in DB plan s,
many of the legal principles aecting pension plans, while applicable
to all plans, have a par ticular relevance to DB plans. The prevalence of
DB coverage is illustrated, for example, by the abundance of ca selaw
addressing pension surplus or def‌icits. These legal issues only ar ise
in DB plans. Moreover, provincial pension standards legislation has
limited reference to DC plans and contain s few legislative standards
dedicated exclusively to that plan type.
3 Tabl e 11-10-010 6-01, above note 1. This i s a reduction from 71 percent in 2014
and 90 percent in t he 1980s.
4 Statistic s Canada, Table 11-10-0095-01 Registered pens ion plans (RPs), active
members an d market value of assets by size of plan, Annual, online: /tbl1/en/tv.action?pid=1110009501. Over 95 percent of
all DB plan employee s belong to plans containi ng at least 100 employees. Since
2000, increa ses in the number of DB plans h ave almost exclusively been w ith
respect to pla ns with fewer than ten memb ers. Many new DB plans are Ind ivid-
ual Pension Plan s (IPPs). Between 2000 and 2017, the number of IPPs tripled. In
the same per iod, the number of DB plans wit h 100– 499 employees decreased by
63 percent.
5 Table 11-10-0106 -01, above note 1. As of 1 Janua ry 2017 the number of public
sector employees belong ing to DB plans has decre ased slightly to 2,981,745. The
number of private se ctor employees belonging to DB plan s has also dropped to

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