The Canadian and U.S. marketplaces share many similarities, which has led to the creation of vibrant, rapidly-growing cross-border companies. As a result, it has become common for many U.S. executives to spend at least part of their career in Canada.
And, while many of the two countries' laws regarding pensions and employee benefits are similar, there are important differences. If your company operates in Canada, here's what you need to know:
Employee Retirement Income Security Act (ERISA)
- Canada's provincial legislation ERISA is a federal statute that applies across all the United States. By comparison, in Canada there is different pension legislation in each of the ten provinces and in the three territories.
- Patchwork quilt: U.S. corporate counsel may need to understand and cope with what is essentially a patchwork quilt of regulations, especially if they have operations in different parts of our country.
- Only pension plans are regulated: In the U.S., all types of employee benefit plans are regulated by ERISA. In Canada, provincial legislation applies only to pension plans. Other types of employee benefit plans - for example, health care plans, disability insurance plans and/or dental benefit plans - are not regulated in Canada.
- Principle based system: ERISA is a "code" based system. Canadian provincial legislations are more of a "principle" based system, with less guidance in the legislation and more discretion given to the regulators.
- Litigation is increasing: In comparison to Canada, there is a lot more litigation concerning employee benefit plans in the U.S. It is worth noting, however, the amount of litigation in Canada in regard to employee benefit plans is increasing.
- No "safe harbour" provisions: In contrast to ERISA, with its "safe harbour" provisions, in Canada, there is no such protection: the employer never has any statutory immunity from liability. This difference may assist U.S. corporate counsel in understanding the different business culture between the U.S. and Canada.
- U.S. employees view health benefits as more important than do many of their Canadian counterparts, because of the publicly funded health care system in Canada.
- Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions apply in the U.S. There is no equivalent legislation in Canada.
Defined benefit pension plans
- In Canada, defined benefit pension (DB) plan coverage is still much more prevalent than the defined contribution (DC) plan coverage, whereas in the U.S. there are many more employer DC plans and 401 (k) than DB plans. Statistics Canada (January 1, 2005) stats show 7,500 pension plans registered in Ontario, and more than 2 million Ontario pension plan members. Fifty-one percent of the plans are defined benefit pension plans, with 83% of the members.
- Canada is moving toward a great percentage of workers being covered by defined contribution plans, but is still behind the U.S. in converting employees from DB to DC plans.
Saving for retirement
- Canada has much lower limits than the U.S. for tax sheltering retirement savings arrangements and funding of other types of employee benefits.
- Canada has a stronger union movement than the U.S., and, as a result, collective bargaining plays a much more important role in pension and benefits than in the U.S.
A final thought: the Canadian legal system generally is more principle based and focuses on ensuring good corporate conduct through regulatory power. The U.S. attitude, by way of comparison, emphasizes adherence to clearly-defined rules and regulations, which provide a level of protection to corporations