B.C. public-sector retirees lose fight for premium-free benefits

Claimed new partial premiums breached their contracts after years of promises benefits would be fully funded by Crown

A class action suit by British Columbia government employees over changes made to their benefits for retirees has been defeated by that province’s Supreme Court.

Frederick Bennett, a B.C. government employee, launched the lawsuit after the government made changes to retirement benefits. It then became a class action on behalf of 27,000 government employees and retired employees, representing everyone affected by the changes.

Crown told promised premium-free retirement benefits

From 1978 to 2000, the provincial government told its employees who were members of the British Columbia Public Sector Pension Plan they would continue to receive benefits after retirement without having to pay premiums. It issued information pamphlets and retirement letters and held meetings that reinforced the notion. During this time, the government administered the pension plan itself.

In 2000, the government and its unions reached a joint trust agreement (JTA) that created a board of trustees to administer the pension plan and its funds. The JTA allowed plan members to share control, surpluses and liabilities, which the government had previously controlled.

New board of trustees off-loaded a portion of premiums

In 2002, the board of trustees made changes to the retiree benefits, effective Jan. 1, 2003. The changes eliminated funding for dental coverage for retirees, increased the annual deductible for extended health, eliminated out-of-country coverage, increased the lifetime maximum of extended health claims and required retirees to pay one-third of their plan premiums.

Bennett claimed the requirement for retirees to pay part of their benefits and the increased deductible constituted a breach of the employment contract entered into by each retiree during the period full premium-free benefits were promised. He also said the government had a fiduciary duty to inform retirees that the benefits structure wasn’t permanent and the changes created “significant risk” to retirees.

The government disputed the benefits were ever part of the employment contract and said the information it provided to employees was a description of what extent of benefits were available at the time, which met its fiduciary duty. It also argued pension plan coverage and premiums for Crown employees were dictated by the board or the lieutenant-governor under the Public Sector Pension Plans Act (PSPPA). Therefore, employees and retirees should not assume the plan would never change.

The court found all the information the government provided to its employees on the pension plan, through booklets, pamphlets, meetings and retirement letters, was provided after employees had been hired, usually when employees were close to retirement. The employment contract for each employee had already been entered into so the information could not be considered part of the contract, said the court.

Legislation allowed for changes; no guarantee there wouldn’t be more

The court looked at the PSPPA and its legislative predecessors, which gave discretion for employee and retiree benefit contracts to the lieutenant-governor of British Columbia. Premiums for these benefit plans were often set by regulations and changed over time.

“The wording of the (predecessor legislation), in granting the lieutenant-governor discretion to set premiums, and the fact that such premiums were set and increased over time before decreasing to nil militates against a finding that the benefits were contractually guaranteed or that their premium- free status was set in stone,” said the court.

Since all information on retiree benefits was given after hiring and there was no reference to the pension plan to prospective employees, the court found there was nothing to imply a contractual arrangement for the benefits and the distributed documents should have been viewed as simply descriptions of the plan.

The court also found the government had a fiduciary duty to keep employees and retirees informed of the status of the pension plan at any time but it didn’t apply to potential changes nor to fund the plan the same way indefinitely, particularly since it was clear the legislation allowed for changes. The “public law nature of the Crown,” it said, was also a factor.

“If (Bennett) is correct, the result would be the retiree benefits would be frozen at a premium-free status,” said the court. “Civil servants retiring later would not enjoy similar benefits. Their contributions to the pension plan would go, in part, toward maintaining the premium-free benefits of (the current retirees).”

The court dismissed the class action. See Bennett v. British Columbia, 2009 CarswellBC 2635 (B.C. S.C.).

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