Pensions: Know the law in your Province
By Cynthia Lazar on 2015/06/08
Imagine this scenario: Purchaser buys a business in Manitoba from Vendor. Due diligence is completed and the sale goes through. Roughly 10 years later, the union raises questions about an employee’s pension. As a result of this inquiry, it is discovered that Vendor was not properly enrolling employees in the pension plan. The deadline for claims based on the due diligence has long passed, and Purchaser is now responsible for making up the shortfall of contributions and interest amounting to more than $100,000.
How could this happen?
Both Purchaser and Vendor are national companies with most of their operations in Ontario and Quebec. The pension plan which Purchaser inherited is administered out of Ontario. Likely the representations and warranties given in the due diligence process were based on compliance with Ontario and Quebec pension laws.
However, Manitoba pension law is unique in Canada in terms of its enrolment requirements.
Section 21 of The Pension Benefits Act requires the pension plan to identify one or more classes of employees who are eligible for membership in the plan.
For full-time employees within a class covered by the pension plan, membership is mandatory.
For employees who are not full-time, but who would fall within a class covered by the pension plan if they were full time, membership is mandatory, subject to meeting certain eligibility requirements.
Enrolment must be completed within 30 days of any minimum period of continuous employment specified by the plan, which cannot exceed two years.
There are some exemptions from mandatory enrolment:
- full time students;
- religious objectors;
- people employed by the employer prior to January 1, 1984, and who were not members of the pension plan prior to that date; and
- employees already receiving a pension from the same employer.
In this case, Vendor was apparently unaware of the Manitoba mandatory enrolment requirements, and treated pension enrolment as optional. This meant that some “mandatory enrolment” employees were enrolled late, creating contribution shortfalls. Fortunately for Purchaser, all the mandatory enrolment employees were ultimately enrolled, or the loss would have been even greater.
In terms of remedy, the case law indicates that the employer is responsible for all missing employer contributions, plus the interest on both employer and employee contributions. Employees are required to make up their own missing contributions. (See Ontario, Ministry of Attorney General) and OPSEU (Hunt), 2013 CarswellOnt 14891 for example).
So, how to avoid such a situation?
When dealing with Manitoba employees, include these items in your due diligence:
- Obtain confirmation that all employees are enrolled in the pension plan, unless exempted.
- Obtain proof of exemption with respect to each employee for whom an exemption is claimed.
- Obtain confirmation that all employees in classes covered by the pension plan and employed on or after January 1, 1984 were in fact enrolled in the pension at the first opportunity. This depends on terms of the plan, but the absolute maximum is two years plus 30 days.
- Obtain confirmation that all employees employed prior to January 1, 1984 were either enrolled in the pension at the first opportunity, or proof that pension information was provided and enrolment was declined.
- Obtain copies of any forms, policies or protocols used or followed with respect to pension enrolment, and names of resource people who may be able to provide information in the future.
Lastly, don’t assume that pension law is the same across jurisdictions. Consult a local practitioner!
Article was originally published in the Canadian Bar Association’s Newsletter – CBA E-News in the May 2015 issue.
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