Pension and benefits litigation is on the rise in Canada. What should plan sponsors do to prepare?

The past few years have shown a steady increase in pension and benefits disputes between employers and employees—due, in part, to the introduction of class actions in Ontario, said Stephanie Kalinowski, partner in Hicks Morley’s pension and benefits group, at the firm’s 2008 client conference in Toronto. Kalinowski and John Field, partner in the firm’s Toronto office, discussed current and future trends as well as strategies for employers to deal with this type of litigation more effectively.

Employers have faced individual benefits-related actions for some time. Now, they’re also facing class actions—particularly relating to changes to retiree benefits, said Field. While these actions may encompass many areas, they’re most often related to reductions or changes to the benefits coverage, he added, such as implementing caps on prescriptions, eliminating out-of-country coverage or adding deductibles.

Field also identified key benefits-related issues that employers need to be mindful of in the future—in particular, bonuses and long-term disability (LTD) during the notice period. He suggested that employers pay close attention to the language relating to bonuses in the employment contract, as it may not require employees to prove entitlement. He also identified LTD as “one of them most thorny and difficult areas” for employers, adding that they must be aware not just of pre-existing disabilities, but also of the potential for disability that may prove an issue during the notice period. “We’re seeing an increasing trend in those kinds of claims,” he noted.

On the pension side, sponsors of defined benefit pension plans are facing litigation relating to surplus allocation (particularly on plan windup), indexing, plan mergers and charging expenses to the pension fund, said Kalinowski. But this may be just the tip of the iceberg.

While the U.S. is leading many of the trends in defined contribution pension litigation, Kalinowski believes that these trends will filter down to Canada as well. In the future, she expects to see a greater number of claims relating to investment losses, benefits adequacy, and recordkeeping fees and expenses. And this could extend beyond the standard pension arrangements. “Don’t assume that just because you have a non-pension plan type of savings program for your employees that you will be immune to these claims,” she cautioned.

Kalinowski and Field also explained some of the ways that pension and benefits litigation can be brought by employees against employers—class actions, representative actions and individual actions, to name a few. Employers may even face the triple-whammy of a court process, a grievance and a complaint to the pension regulator.

To help employers reduce the risk of having legal actions brought against them—and to deal with these claims more effectively if they do arise—Kalinowski and Field recommended a proactive approach. Employers should ensure that they have a good governance system in place that involves both people management and process monitoring (particularly when dealing with third-party providers), and identify risks before they become real issues.

They also stressed the importance of carefully planning new HR initiatives and having a strong communication strategy in place, especially if the initiative may not be well received by employees. “If you plan ahead and roll it out carefully, you may find that things can go very smoothly and turn something that might be a negative into a positive,” said Kalinowski. Preparation and a cooperative approach are important for employers who want to work toward negotiated settlements, instead of getting tied up in the courts.

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