The Saskatchewan Court of Appeal recently ruled that members of the Saskatchewan public service pension plan are not entitled to indexed pension benefits, beyond what was already provided for in legislation: May et al. v. Government of Saskatchewan 2013 SKCA 11.
In a class action on behalf of members of the pension plan, the Government of Saskatchewan was accused of breaching employment contracts with its employees and breaching its fiduciary duties toward the members in failing to fully index the pensions payable from the plan.
The pension plan for public servants in Saskatchewan migrated from a DB plan to a DC plan in 1977. However, members of the plan at that date could elect to continue participating in the DB plan.
It is a very rich plan, providing a benefit equal to 2% of a member’s final average earnings, multiplied by years of service. The benefits in the plan were not indexed originally. The government later indexed benefits on an ad hoc basis.
Over time, the pension benefits lost a fair bit of purchasing power due to the lack of full indexation. The public service union attempted on several occasions to bargain cost-of-living increases to the pension benefits but had not succeeded. Legislative changes were later made in 1997 to provide protection for 70% of increases in the cost of living.
Plan members argued that the government had promised to treat the members of the plan “equitably and fairly, having regard to other employees of the government and its Crown corporations,” which arguably included providing fully indexed pensions.
The trial judge held against the plan members, because they had not established a contractual right or a breach of fiduciary duties by the government.
This case illustrates that a pension promise can be derived from many sources. Plan members will naturally seek to assert a case based upon the most favourable wording, and, in the case of ambiguity or inconsistency between pension documents or information, courts will often resolve the ambiguity or inconsistency in favour of the plan members.
The members in this case, however, were unable to put forth any convincing evidence that the employer had promised fully indexed benefits.
Courts will look not only to the pension plan text and employee booklet but also to the presentation materials, pensioner statements, summaries in actuarial reports and other documents, and also to oral representations to determine the specific details of what pension benefit the members have been promised.
Employers, administrators, actuaries, insurance companies and others involved with the administration and communication of pension plans need to use the utmost care and diligence to ensure that pension benefits are described accurately, consistently and clearly.
This applies equally to DB and DC pension plans, as well as to non-pension retirement savings plans, equity-based plans such as stock option and stock purchase plans, and group benefits and post-retirement benefits plans.
Mark Newton is a partner with Heenan Blaikie. mnewton@heenan.ca