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Pension Benefits At Termination

As we have discussed in other blog postings, terminated employees are entitled to all forms of compensation for the duration of the reasonable notice period, including salary, bonuses, incentive compensation, stock options, RRSP contributions, employee benefits, and pension benefits.

When an employee is terminated, the employer is obligated to continue pension contributions for the duration of the statutory notice period as prescribed by the Employment Standards Act  (i.e., one-week per year worked, up to a maximum of 8-weeks).  Following the expiration of the statutory notice period, many employers will attempt to cut-off contributions to the employee’s pension plan, which can result in a substantial reduction in value of your pension.

Some pension plans require that the employee be ‘actively employed’ in order to qualify for employer contributions. Accordingly, if a severance package is negotiated whereby you continue to be employed by the employee by receiving severance pay on a salary continuance basis, this is generally sufficient to meet the definition of active employment for the purposes of qualifying for pension plan contributions.  Alternatively, some employers may wish to pay-out a one-time lump sum at termination on account of the pension loss, equivalent to the value of the lost pension contributions and the loss of the value of the pension at retirement.  A specialist actuary or valuator may be required to value the pension loss.

If your employer has not provisioned for pension payments in your termination package, please contact us today for a free review of your severance package and pension plan policy to ensure that you protect your rights.

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