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September 12, 2012
Premium-free retiree benefits not a right, BC court rules

Public sector workers in British Columbia have lost a bid to continue to receive free medical and extended health benefits after retirement.

The ruling by the British Columbia Court of Appeal settles a nine-year-old debate between the 27,000 members of the British Columbia Public Service Pension Plan (BCPSPP) and the province on whether the pension plan members had a contractual right to receive premium-free benefits indefinitely.

The case dates to January 1, 2003, when the provincial government changed the terms of its retiree benefit plan to require plan members to pay for extended health care benefits.  The 2003 revisions also included increasing plan deductibles and limited the age that extended health care benefits would be available to retired members.

At the heart of the litigation were the various documents published by the province to describe the retiree benefits program.  According to the retirees’ representatives, brochures, pamphlets, booklets, letters to retirees and other communications from the province promised premium-free benefits upon retirement.  These materials acted to induce people to join the provincial public service and remain with that employer until retirement, they argued.  As a result, a “unilateral contract” was created where employees continued to work in return for a promise of premium-free benefits at retirement.

In its review, the court held that even if such statements were made about the benefits arrangements, they did not constitute a “promise” since the various brochures and communications were provided to members well after they were hired by the province, usually just prior to a member’s retirement.  In this sense, the communications materials provided to plan members amounted to representations or descriptions of the benefits rather than a contractual promise.

According to the BC court, a promise contains an undertaking to do or not do something.  The brochures and booklets, it said, contained only descriptions of the benefits available at the time and did not contain a promise to provide premium-free benefits indefinitely.

Also backing the government’s position was the legislative history behind the retiree benefit plan.  The original Public Service Medical Plan Act of 1955 mandated that premiums could be deducted from employee wages and pension payments and would be partly subsidized by the province.  That premium regime continued until 1978, when the premium structure became fully subsidized by the government.  In 2003, the province amended legislation to introduce the latest premium arrangement.

As a result, there was legislative and administrative precedent to back the argument that the premium structure supporting the retiree benefits plan was not fixed indefinitely.  

For plan sponsors and administrators, the BC Appeals Court ruling reinforces two key points:   

• that brochures and other communications material are merely representations or descriptions of benefits that may exist at a certain time; they cannot take the place of formal legal contracts where specific benefits are promised under a set of specific terms and conditions; and

• premium structures of benefit plans can be changed, provided appropriate contractual or legislative provisions have been included in the plan’s governing documents. 

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