Supreme Court of Canada Upholds Age-Based Distinctions in Federal Public Sector Pension Plans

Administrators and sponsors of pension and benefits plans containing age-based distinctions should take close note of the Supreme Court of Canada’s recent decision in Withler v. Canada (Attorney General), 2011 SCC 12. The decision means that age-based distinctions remain valid in certain circumstances. However, the fact that the case made its way to Canada’s highest court indicates that legal challenges to such provisions are likely to continue.

In Withler, a unanimous Supreme Court upheld the constitutionality of provisions in two federal public sector pension plans which reduced supplementary death benefits for each year by which the plan member had exceeded a specified age. The amounts at stake were immense, with over $2.3 billion in benefits claimed by the plaintiffs.

The case involved two class actions initiated by spouses of deceased members of pension plans under the Public Service Superannuation Act (Can.) and Canadian Forces Superannuation Act (Can.). The plans provided designated beneficiaries with lump sum supplementary death benefits upon their spouses’ deaths. Both plans reduced the amount of the benefit by 10 per cent for each year by which the member exceeded age 65 or 60, respectively. The plaintiffs argued that the reductions discriminated against them based on age, contrary to section 15(1) of the Canadian Charter of Rights and Freedoms. A majority of the British Columbia Court of Appeal upheld the reductions, but in a dissenting opinion, Madam Justice Rowles would have found the reductions unconstitutional.

In ruling that the reductions were not discriminatory, the Supreme Court emphasized the purpose of the distinctions in the context of the pension schemes as a whole. A key consideration was that the supplementary death benefits were not intended to provide a long-term income stream for older surviving spouses. Income security was provided by the survivor’s pension, combined with the public service’s health and dental plans. Thus, when the death benefit was considered in light of the suite of benefits provided to surviving spouses, the purpose of the distinction generally (although not perfectly) corresponded to survivor’s needs.

The Court’s decision means that public sector plans with similar age-based reductions for death benefits remain valid. The Courts also will consider the context of the plan as a whole, not just focus on the impugned provision. The upshot for private pension plan sponsors and administrators is that exemptions in human rights legislation that permit similar reductions in private pension plans may also be less vulnerable to successful legal challenge. Nevertheless, the divergent opinions evident in the Court of Appeal highlight the complexity and unpredictability of Charter-based litigation. It is unlikely that Withler will spell the end of legal challenges to age-based distinctions in benefits plans, particularly as an increasing proportion of the workforce reaches retirement age and benefit costs continue to rise.