As many employers are forced to temporarily lay off employees due to the impact of the coronavirus pandemic, what does that mean for the provision of benefits and pension plans?
Kim Siddall, vice-president and local practice leader at Aon, says eliminating benefits isn’t the route most employers would voluntarily choose, but she acknowledges that where organizations have seen their revenue reduced significantly or stopped completely, these measures are under consideration. “Some employers are extending benefits throughout the layoff period, some for a portion of the benefits period and others are not extending at all. It’s a bit of a mixed bag.”
Legally, under employment standards law across the country, employers aren’t required to continue benefits or pension contributions for employees who have been temporarily laid off, says Marc Rodrigue, partner in the labour, employment and human rights group at Fasken LLP. “Whether as a term of somebody’s contract or the common law, which may be applicable, there may be requirements to continue benefits. But what most employers are focused on right now is, what does the bare minimum statute say?”
One exception is in Ontario where there’s a type of temporary layoff — the longest possible allowed under the Employment Standards Act — that requires one of many conditions to be made, he says. “In one of the conditions that employers can choose from is continuing benefits and, in particular, insurance-type benefits, through a temporary layoff, that allows employers to have a longer layoff, at least under the legislation.”
Another issue that’s being raised in the current climate is around benefits plan co-pays. Siddall notes some provinces allow for a change in cost-sharing arrangements. “Either employers pick up the employee contribution — sometimes with the agreement that the employer will be repaid when things return to normal — or for employees to continue their benefits if they pay for them.”
Rodrigue is also seeing some employers choosing to pay both premiums. “Some employers are looking into whether they can pay employee-side premiums for now and then figure out a way that’s legal to have the employee pay them back when things change.”
In the meantime, another way employers can support employees is by extending their life and disability coverage, as well as the employee assistance program, rather than all benefits, says Siddall. “Or [they could] look to implement an employment insurance work-sharing arrangement or set up a supplemental unemployment benefits program.”
Looking to retirement benefits, capital accumulation plan sponsors will have to look to their plan texts since they should cover situations like unpaid leave, temporary leave and short-term disability, says David Morton, senior director and actuary at Willis Towers Watson.
They should also be looking to ensure they’re on the right side of employment standards legislation because some jurisdictions are actively changing the regulations in response to the coronavirus situation, he notes. “Ontario has just added provisions to their employment standards legislation which is protecting unpaid leave in instances of infectious disease, which essentially means that contributions to defined contribution plans would need to continue if the member is at least making the contributions that are required of them.”
In some cases, employers may be using work-sharing programs, where employees can work reduced hours, with employment insurance supplementing their income, says Morton. He urges CAP sponsors to remember that income tax provisions allow them to cover contributions based on a member’s total income, including the portion provided by EI.
“There are ways to get it covered if employers want to. Obviously, if they’re looking at cost containment, they may not be eager to do that, but the messaging that I’m hearing is that just asking people to work reduced hours is enough of a sacrifice for employees. So they want to convey the message to employees that their pension will not be affected by this change.”
Whatever temporary strategy a plan sponsor is implementing, it’s important they provide clear communications and good documentation confirming both the details and that the arrangement is temporary to avoid any misunderstandings and misinterpretations down the road, says Siddall.
Morton agrees, noting all CAP sponsors should be communicating a message of reassurance to their members in the wake of market turmoil caused by the spread of the virus. “Remind people that, historically, markets have rebounded reasonable quickly, in the grand scheme of things. If your perspective is 20 to 60 years, waiting one or two years for recovery is not necessarily the end of the world.”
And, while insurers haven’t announced any measures concerning freezing or deferring employer premiums or pension contributions as a result of coronavirus, the Canadian Life and Health Insurance Association is in regular contact with its members. “We’ve been in touch with our members on a wide range of measures to help Canadians through this unprecedented period,” said the CLHIA in a statement to Benefits Canada. “I expect we will consider and respond to other issues as they are raised in the days and weeks ahead.”