Contributed by Heenan Blaikie LLP
June 01 2011
The Ontario Court of Appeal recently released a decision concerning pension plan administration.
The court’s decision in Smith v Casco Inc, released on April 20 2011, concerned the use of a pension benefit waiver form that had been designed by the employer, Casco Inc. The purpose of the waiver was to permit a pension plan member and the member’s spouse to waive entitlement to an automatic lifetime joint and survivor pension, under which the spouse would be entitled to 60% of the member’s pension upon the member’s death.
In this case the plan member decided to retire after 39 years of service. In advance of doing so, he signed a pension option election form and selected one of 14 payment options. The option that he selected was a lifetime pension with a five-year guarantee of pension payments, with no lifetime survivor pension to his spouse in the event that he predeceased his spouse. The member and his spouse had also signed a joint and survivor benefit waiver form, under which the lifetime survivor pension for the benefit of the spouse was waived.
According to the finding of facts by the lower court, the plan member brought the waiver form home at lunchtime and asked his spouse to sign the form so that he could retire. The spouse glanced at the form. She did not review it and did not understand that she was waiving entitlement to a survivor pension. Unfortunately, the plan member died three years after retirement, leaving only two years of pension payments from the five-year guarantee for the benefit of his surviving spouse.
The Ontario Pension Benefits Act was amended as of January 1 1987 to include a minimum level of protection for spouses of pension plan members in the form of survivor pensions. The ‘automatic’ form of pension payment under a pension plan is a reduced lifetime pension payable to the plan member, with 60% of the amount of the plan member’s pension continued to the surviving spouse for the lifetime of the surviving spouse.
The legislation also provides for the ability of a pension plan member and the member’s spouse to waive jointly payment of the automatic joint and survivor pension. The legislation prescribes a form for the waiver. In this case Casco drafted its own form, which was modelled on the prescribed form, but differed in certain respects. Many employers have taken this approach with the intent of making the prescribed form more intelligible. The issue with which the court had to grapple was whether the waiver was valid under the Pension Benefits Act.
The court held that the surviving spouse was not bound by the waiver and therefore was entitled to the lifetime survivor pension. The court referred to the Ontario Interpretation Act and the Ontario Legislation Act 2006, which replaced the Interpretation Act. This legislation provides certain rules in respect of the interpretation of legislation. One of the rules is that where legislation refers to a prescribed form, deviations are permitted, but only those that do not affect the substance of the form.
The court reviewed the customised form, compared it with the prescribed form and concluded that the differences affected the substance of the form. According to the court, the main difference was that the customised form referred to an entitlement to the 60% joint and survivor pension and then stated that the 60% joint and survivor pension mandated would be waived. The prescribed form, being a generic form, referred only to the pension under the legislation.
The court did not refer to this clear statement on the customised form:
“We understand that we may waive the right of the spouse or same-sex partner to receive the 60% survivor’s pension. In this case, the member will be entitled to elect an alternate form of pension benefit from the Plan which does not provide any survivor’s pension to the spouse or same-sex partner.“
There were other inconsistencies, such as certain statements not being in bold or the caution to seek independent legal advice being placed immediately prior to the signature line rather than after it. The court held that these changes affected the substance of the prescribed form. The customised form was therefore not valid or binding on the surviving spouse. Essentially, it seems apparent that the court was doing its best to reach a conclusion that would not preclude the surviving spouse from receiving a pension as a result of hastily signing a form.
The court rendered a similar decision in 1999 in Deraps v Labourers’ Pension Fund of Central and Eastern Canada.(2) In that case a multi-employer pension plan also used a prescribed form and went so far as to employ an internal pension counsellor. The court’s decision hinged not on the use of a customised form, but rather on the fact that in the counselling session, the internal pension counsellor did not make it crystal clear to the plan member and spouse that if the joint and survivor pension were waived, the spouse would receive nothing upon the member’s death. The court decided in favour of the surviving spouse. READ MORE