benefits affect severance pay calculations
Many employees have questions about severance pay when they are laid off or terminated. This type of compensation is a key part of any termination package and employers must make sure that they understand the relevant law and the impact on pension benefits.
Generally speaking, an employer cannot deny or offset severance pay calculator based on an employee’s eligibility to receive pension benefits. However, there are a few exceptions to this rule that must be considered.
A pension benefit is a sum of money that an employee will receive when they retire or leave their company. This money is usually paid on a monthly basis, either directly to the employee or through a beneficiary. Pensions are commonly offered by large companies as a benefits incentive to retain employees and attract new talent. A typical pension is a defined benefit plan where the final pension amount will be a function of the number of years an employee has worked for the company, their salary, and their contributions to the retirement fund. Government pensions, such as Social Security in the United States, are also a form of defined benefit plan.
How do pension benefits affect severance pay calculations?
When an employer denies or offsets severance pay for wrongful dismissal in Ontario on the basis of an employee’s pension eligibility, they may be in violation of the Age Discrimination in Employment Act (ADEA). The ADEA prohibits employers from treating older workers differently from younger workers in all aspects of employment, including pay, retirement plans and other benefits. A person who is denied severance pay because they have the ability to receive a pension benefit that is tied to their age can file a claim for wrongful dismissal in Ontario.
EXAMPLE 1: Employer L provides its laid off employees with lifetime retiree health benefits, which they must pay 50 percent of. The employer tries to offset CP’s severance package by the value of these health benefits, which violates the ADEA.
The only way that an employer can legally reduce severance pay to offset an employee’s entitlement to pension benefits is if the severance package and pension plan were both set in place before the termination of employment. Otherwise, the employer must calculate the value of the severance package and pension benefits as though they had been in effect for the entire period of employment.
Whenever possible, employers should structure their severance packages to avoid any potential issues relating to pension benefits. Ideally, the severance package should include cash payments that are equivalent to the amount of pension accruals that would have been earned over the period of the statutory notice. This will ensure that the severance package and pension treatment is consistent with employment standards law. For any other questions regarding severance pay or wrongful dismissal in Ontario, please contact a Toronto employment lawyer at JPAK. We will be happy to help you navigate the law. Contact us today to schedule your free consultation. We are available to meet with you at our offices in downtown Toronto or via videoconferencing.
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