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In this case, the employer agreed to early retirement provisions, supplementary bridge benefits and early retirement allowances for employees laid off following a plant closure.  Employees who retired on pension were not provided severance pay as the ESA provides that employees receiving actuarially unreduced pension benefits, a term which is not defined, are not entitled to severance pay. The union grieved. The arbitrator held that the commuted value of pension benefits, bridge benefits and other ancillary benefits must be taken into account when determining if pension benefits were actuarially unreduced. The arbitrator held that the loss of service due to early commencement did not constitute a reduction in benefits; however, the loss of expected service credits must be assessed to determine if the value of pension benefits was prejudiced. Applying this analysis, the arbitrator held that the benefits were actuarially unreduced and employees were not entitled to severance pay. The Divisional Court upheld the arbitrator's decision.

While employers may be relieved that the loss of the opportunity to earn further credited service in a pension plan does not automatically entitle an employee to severance pay, the converse is also true. An employee who retires early on pension that does not apply any reduction prior to the normal retirement date, will not automatically be disentitled to severance pay because the regulations under the ESA require any loss in service credits to be taken into account in determining whether pension benefits have been prejudiced.

For more information on this decision, please see Heenan Blaikie's Pension Pulse " What Is an Actuarially Unreduced Pension Benefit?" (pdf).