Pension “buy-back restriction” for part-time employees violates Charter
On October 16, 2020, the Supreme Court of Canada (the “SCC”) released its decision in Fraser v. Canada (Attorney General) (“Fraser”). Fraser is a significant decision that will disrupt pension plan design and administration across Canada for years to come.
Fraser involves three retired members of the Royal Canadian Mounted Police (the “RCMP”) who participated in a defined benefit pension plan that was established pursuant to federal statute (the “Plan”). The benefit formula under the Plan is based on years of pensionable service multiplied by the annualized average of a member’s best five consecutive years of earnings. Members receive full-time pensionable service credit for periods in which they work forty hours a week. Members who take a leave without pay (“LWOP”) for any of a variety of reasons are permitted to “buy-back” the period of service associated with the LWOP (“buy-back rights”). Buy-back rights provide a member who has taken LWOP with an opportunity to increase the value of her pension though purchasing and receiving pensionable service credit for the period of the LWOP.
In 1997, in an effort to ameliorate the working environment for female RCMP officers, the RCMP introduced a job-sharing program, which allowed two or three RCMP members to split the responsibilities of one full-time position. The appellants, all of whom women and all of whom had faced challenges balancing childcare and work responsibilities after returning from maternity leave, participated in the job-sharing program between 1997 and 2011. However, the appellants were informed that they could not exercise buy-back rights for the period of time they were participants in the job-sharing program. For pension purposes, participants in the job-sharing program were classified as “part-time” and were not given buy-back rights in respect of the balance of the full-time schedule they were not working as a result of the job-sharing program (the “buy-back restriction”). The practical effect of the buy-back restriction was that full-time RCMP members who participated in the job-sharing program were unable to accrue full-time pension benefits throughout their career, resulting in a lesser pension on retirement.
The SCC decision
Section 15(1) of the Charter states:
“Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability”.
The appellants argued that the buy-back restriction violated the appellants section 15 rights on the basis of sex. A majority of the SCC agreed, finding that the buy-back restriction constituted adverse impact discrimination. Adverse impact discrimination occurs when a seemingly neutral law has a disproportionate impact on members of groups protected on the basis of an enumerated or analogous ground that is protected under the Charter.
In arriving at this conclusion, the SCC relied on evidence that:
- RCMP members who participated in the job-sharing program were predominantly women with young children; and
- from 2010-2014, all RCMP members participating in the job-sharing program were women, most of whom cited childcare as the reason for their participation in the program.
In addition, the SCC agreed with the appellants’ submission that the buy-back restriction “perpetuated a long-standing source of disadvantage to women, specifically gender biases within pension plans which have historically been designed for “for middle and upper-income full-time employees with long service, typically male”.
Moreover, the SCC held that the buy-back restriction could not be “saved” under section 1 of the Charter because the federal government did not offer a policy reason, let alone a “a pressing and substantial policy concern, purpose or principle” for the buy-back restriction.
In the result, the SCC issued a declaration that the buy-back restriction was a breach of the Charter and ordered the Federal government to develop a methodology for facilitating the buy-back of pension credits that is in accordance with the SCC’s decision. Moreover, “in order to give the claimants and others in their position a meaningful remedy” the declaration has retroactive effect.
Application of Fraser to pension plans
The reasoning in Fraser is applicable to pension plans established pursuant to statute. Consequently, public sector pension plans in every province must pay attention to this decision.
Members of private sector pension plans could well argue that Fraser is applicable to private sector pension plans as well. While private sector pension plans are not subject to direct Charter challenges, the SCC’s analysis of the discriminatory impact of the buy-back restriction under the RCMP Plan is highly likely to have a significant impact on how human rights tribunals and commissions across Canada interpret and apply human rights legislation when adjudicating similar allegations.
Finally, while Fraser concerned a defined benefit pension plan, its principles are potentially applicable to all designs of pension plan – be they defined contribution, target benefit, or defined benefit.
Implications of Fraser to pension plans
Fraser is clearly a big decision in the area of section 15 jurisprudence and is sure to have wide and reverberating implications across Canada for years to come in a variety of facets of life. Equity-seeking groups are sure to applaud its clarification of the legal test to establish a section 15 violation. It is less clear, however, exactly what pension design features were considered to have been offside by the Court under section 15, and what administrators will need to do in order to correct any discrimination.
Of particular note is that the decision is unclear as to exactly what feature of the RCMP pension plan made the buy-back restriction unconstitutional. Is the buy-back restriction discriminatory because the Plan does not extend buy-back rights to women working part-time for childcare reasons, plain and simple? Or is it discriminatory because those on LWOP for any one of a variety of reasons are afforded the opportunity to buy-back periods of LWOP and those working part-time for childcare purposes are not? If the latter, is a buy-back restriction discriminatory if a plan does not provide the ability to buy-back LWOP other than where required by statute?
Also unclear is the length of time that must be made available for purchase, and how to determine the price of the buy-back. Is the length of time determined with reference to any other leave or certain types of leaves or is it unlimited? Is the price of the buy-back determined based on the price charged to those on leave (which may be completely unsubsidized or partially or fully subsidized), or the price charged to those who are working full-time?
Finally, the retroactive effectiveness of the declaration could be extremely costly depending on the answers to the foregoing. Going forward, buy-backs can be appropriately priced for employers and employees so that the plan does not incur a loss related to recognizing the “unworked part” of part-time service. However, providing retroactive credit for anything less than actuarial cost will have financial implications for pension plans. For plans with fixed contribution rates, the decision introduces yet one more complication.
Administrators have their work cut out for them and will be grappling with this decision for years to come. There will undoubtedly be women who worked or who are working a part-time schedule to accommodate childcare needs, and members of other equity-seeking groups, who may seek redress from human rights tribunals, courts and through class proceedings. At a minimum Fraser requires administrators to consider, in a thoughtful and thorough way, whether a plan redesign that addresses part-time employee service accruals is necessary. Plan administrators should consult with their legal advisors.
 Fraser v. Canada (Attorney General), 2020 SCC 28
 Canadian Charter of Rights and Freedoms