Some employers offer pension plans or benefit plans that are voluntary – the employee may choose to participate or not. A voluntary plan can be a disaster waiting to happen, unless the employer pays close attention to communications with employees about the plan and how to enrol. Even if timely disclosure of eligibility to enrol is made to employees, meticulous records may be essential to prove that later.
In two Canadian cases, courts have held that an employer failed to provide an employee with adequate disclosure regarding optional life insurance and the employer was required to pay some or all of the amount of the insurance benefit for which the employee was not enrolled. It was held that the employer had a duty to provide timely disclosure including basic details of the benefits coverage and applicable time lines for applying.
For a voluntary pension plan, an employee might claim that he or she was not given timely disclosure of the right to enrol and seek enrolment as of the date he or she first became eligible. Such claims have arisen at the time of conversion of defined benefit plans to defined contribution plans. As a result, an employer may face unexpected contributions to the plan. If income tax rules will not permit retroactive enrolment of particular employees, the employees may seek damages. If a class action is brought on behalf of a number of employees, the amounts at issue could become substantial.
Therefore, an employer with a voluntary plan needs to effectively communicate with employees about the plan, the method of enrolment and any applicable timelines.
The process starts when an employee is hired. Beyond handing the new employee a benefits brochure, any voluntary pension or other benefit plans should be highlighted – preferably in the written offer of employment.
It may not be enough to address the matter at the time of hiring. Pension legislation sets out specific timing for providing employees with information regarding a pension plan.
In Ontario, if an employee is eligible when hired the information must be provided within 60 days after he or she commences employment. If an employee becomes eligible after hiring, the information must be provided within 60 days prior to the date on which the person will become eligible. Therefore, for a pension plan that requires a period of service before an employee becomes eligible to enrol, information must be provided again within 60 days before that eligibility date regardless of information provided at the time of hiring.
The requirements of other provinces differ. For example, in Alberta the pension plan information must be provided on or before the date of employment if the employee becomes eligible at or within 30 days after such date. If an employee becomes eligible later, the information must be provided at least 30 days before the employee first becomes eligible. In Quebec, the information must be provided within 90 days after the employee becomes eligible for membership or becomes a member.
In case of a dispute later, records are key. Ideally, each employee who does not choose to enrol should sign an acknowledgement that he or she received information regarding the plan and elected not to participate. If the employee does not sign the acknowledgement, a follow-up letter should be sent to the employee with a copy kept in his or her personnel file. If the plan terms give the employee a continuing right to enrol, it may be worthwhile to provide annual reminders to non-participating, eligible employees. One could even design or amend the plan to provide that new employees are enrolled unless they make a written election not to participate.
If pension plan information sessions are offered, ensure that notice is given to all eligible employees, keep copies of the notice and the presentation materials, and note attendance. If online access to pension information is provided, ensure that all eligible employees are reminded from time to time and keep a record of the reminders.
If past disclosure or record-keeping practices have been less than perfect, there may be potential employee claims that have not yet come to light. A clear communication strategy from the outset can give employers peace of mind in the years ahead.