In a recent British Columbia arbitration decision NCR Canada Ltd. v. International Brotherhood of Electrical Workers, Local 213, an employer was precluded from requiring members of a defined benefit (DB) component of its pension plan to switch to the defined contribution (DC) component for future service, many years after the DB plan members had been offered an opportunity to voluntarily switch to the DC component of the plan. This case demonstrates the importance of using carefully crafted language when communicating pension plan changes to affected plan members.
Prior to 2001, all NCR employees in Canada (union and non-union) were eligible to participate in the NCR pension plan, a defined benefit plan. NCR introduced a DC component to the plan effective January 1, 2002 for all new hires and gave existing plan members a one-time opportunity to elect to remain in the DB component or switch to the new DC component. Nineteen members of IBEW Local 213 elected to remain in the DB plan.
In 2012, NCR announced it was amending the plan so that all members still participating in the DB component would be required to switch to the DC component effective January 1, 2013. The benefits accrued prior to 2013 would be preserved on a DB basis. The union filed a grievance claiming that NCR was estopped from amending the plan on the basis of representations made to the plan members who elected to remain in the DB component in 2001.
Information provided to plan members in 2001 about the new DC component of the plan and the elections available included a Transition Guide booklet and DC enrollment forms. The Transition Guide included the statement that “You have a one-time opportunity to stay in your current DB Pension Plan or change to the new DC Pension Plan option.” The Transition Guide also stated that in the case of an employee who elects to remain in the DB plan, “you will continue to participate in the DB Pension Plan until you leave or retire from NCR”, and “It’s a ONE-TIME Choice”. Both the Transition Guide and enrollment form included the statement that the employee’s choice “will remain in effect as long as you are actively employed by NCR”. It is worth noting that the Transition Guide contained a caveat in a footnote on the Table of Contents page indicating that the official plan document would govern, and that “NCR Canada reserves the right to amend, modify or terminate the Pension Plan, in whole or in part, at any time”, although the caveat was not included on the enrolment form. NCR also provided a diskette to plan members which enabled members to run projections based on different return scenarios to assist them in determining whether the DB or the DC plan was better for their particular circumstances.
The three elements required to establish an estoppel are an unequivocal representation by a party in a legal relationship, reliance by the second party in the relationship on that representation, and detriment to the second party if the first party is allowed to change its position. The main issue before the arbitrator was whether NCR had made an unequivocal representation that employees who chose to remain in the DB plan in 2001 would remain in the DB plan until they retired or otherwise left NCR. On this issue, the arbitrator found that based on the content in the Transition Guide (excerpted above), the message to employees was the choice the plan members made in 2001 would remain in effect as long as they worked for NCR, and this message was reinforced by the statement made in the enrollment form. The arbitrator assigned particular significance to the use of phrases such as “one-time opportunity” and “one-time choice”, as well as the statement in the Transition Guide that employees who elect to remain in the DB plan “will continue to participate in the DB Pension Plan until you leave or retire from NCR”.
Although the Transition Guide contained a statement regarding the right to amend the plan, the arbitrator noted that it was in a footnote and if the employer wanted to place a caveat on the clear statement that the employee’s choice would last for the employee’s employment life, then the caveat should have been expressed in the body of the document. The arbitrator held that when NCR made a statement to employees that their choice would remain in effect for the duration of their employment with NCR, “NCR was representing to those employees that any legal right it had to amend the Plan to change that situation would not be exercised.”
Based on evidence provided by 2 plan members, the arbitrator found that members had relied on the representations made by NCR and had planned their retirement financial affairs accordingly, such that if NCR were allowed to change its pension commitments to the DB plan members it would result in harm. The arbitrator therefore held that the union had established an estoppel on the facts.
NCR is appealing the arbitrator’s decision to the British Columbia Labour Relations Board and the British Columbia Court of Appeal. If the decision is upheld on appeal, it will demonstrate the importance of carefully crafted messaging when communicating plan changes to affected members. It also demonstrates the importance of giving equal prominence to any applicable caveats (e.g. employer’s right to amend the plan) so they are read in conjunction with the main messages.
One might argue that the 19 plan members who elected to remain in the DB plan in 2001 might not have suffered any harm relative to the financial position they would have been in had they elected in 2001 to switch to the DC plan. This is because they had the opportunity to participate in the DB plan for 11 more years, the value of the additional pension would be preserved, and the value of the additional DB pension likely exceeded the value of the projected DC pension (plus any additional retirement savings the plan members’ claimed they would have set aside had they selected the DC plan option in 2001). However, it is not clear from the arbitrator’s decision whether she took the value of the additional DB pension into account when she concluded that forcing the DB plan members to switch to the DC plan would result in harm.