Ontario Superintendent: Pension Plan Not Expressly Excluding Vacation Pay from Average Earnings Formula Must Include It

March 4, 2019

Ontario’s Superintendent of Financial Services has issued a Notice of Intended Decision that would require a company plan to count vacation pay as base pay for the purposes of calculating a pension entitlement.

Background

A retired member of the Pension Plan for Employees of Hewlett Packard Enterprise Canada Co. (the “Plan”) challenged Hewlett Packard Enterprise Canada Co. (the “Administrator”) with respect to its calculation of his pension entitlement. On termination of his employment, the retired member appears to have received a lump sum payment in respect of his unused vacation time. According to the Notice of Intended Decision (“NOID”), the Plan terms provide that a pension is calculated using final average earnings, determined based on remuneration paid to the member including “base pay”. Vacation pay was not specifically excluded from the Plan’s definition of final average earnings.

Reasons

The Superintendent of Financial Services concluded in the NOID that the retired member’s lump sum vacation pay should have been included in the determination of final average earnings. The Superintendent decided that as the Ontario Employment Standards Act, 2000 (the “ESA”) provides that vacation pay is a statutory entitlement that accrues during employment, then vacation pay (even if paid as a lump sum upon termination of employment) represents the base pay amounts owing in respect of earned but unused vacation.

It is not clear from the NOID on what basis the Superintendent determined that the ESA is applicable to the definition of pensionable earnings under a registered pension plan. The NOID also does not specify whether the retired member’s lump sum vacation pay included both minimum ESA entitlements and contractual entitlements. As the Administrator has requested a hearing at the Financial Services Tribunal, additional details and analysis may be forthcoming.

Going Forward

This NOID serves as an important reminder of the importance of drafting pension plan terms to provide as much clarity and certainty as possible without compromising administrative flexibility and efficiency.

As noted above, further information may be forthcoming. We will continue to monitor developments.

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