EI AND PENSION - WHAT IS YOUR ENTITLEMENT?
Ed Canning Jul 17, 2006
As has been reported in this paper, Stelco is undergoing some belt tightening and has offered voluntary severance packages to a number of senior employees. If they sign off and leave their employment, they get a year’s pay and other perks. But, are they eligible for Employment Insurance?
The answer, unfortunately for these individuals, is that they are not eligible. At least not right away. They are treated the same as anyone who voluntarily resigns from their employment, no EI cheque. If those employees take another job after they leave Stelco, however, and work there long enough to accumulate the hours they would need to qualify for Employment Insurance and then are terminated through no fault of their own, the fact that they are receiving pension payments and voluntarily resigned from Stelco will not matter. What is important is that they had enough hours banked at their last job to qualify for EI and were terminated without fault.
Don’t ask me to make sense of this. The pension payments are “income arising from employment” at one moment but then 10 months later after being terminated from a new job they are not. The reality is that pension payments should not be considered income arising from employment in the first place.
Human Resources and Skills Development Canada treats pension income in a very odd way. If you are forced to retire or are terminated and begin collecting your pension, you can apply for EI but the monthly cheque you get from your pension plan will be considered income arising from employment. If your pension cheque is too high, you will be eligible for EI but may, in fact, not get any or get it at a reduced rate.
On the other hand, if you work for an employer that has no pension plan but you are diligent in saving your money and putting it into RRSPs over the years, you are treated in a totally different way. If a person in this situation is terminated or forced to retire and starts drawing on the RRSPs they have saved over their lifetime, it is not considered income arising from employment and they can get Employment Insurance without any reduction.
Let’s stop and think about this. Imagine that Bob works for a company for 30 years. He gets a salary of $50,000 a year and is in a defined benefit pension plan over those 30 years. Sheila works for a company for 30 years and earns a salary of $60,000 per year, but there is no pension plan. Each year, Sheila takes $10,000 and puts it into her RRSPs.
Bob and Sheila are both terminated as a result of restructuring through no fault of their own. Bob starts receiving payments from his pension plan right away. He applies for EI but his pension payments are too high and in fact, he is entitled to nothing from Employment Insurance.
I would pause to note that the $13,000 or so that Bob might have collected, maximum, from Employment Insurance if he did not find work, is a drop in the bucket compared to the EI premiums he has paid over his 30 years of employment.
Sheila has no pension plan but immediately starts drawing on the RRSPs she has accumulated over the last 30 years with her extra $10,000. Sheila gets her Employment Insurance.
The present rules penalize Bob because his employer set up a structured pension plan instead of just letting him save the money himself.
There is inequity in treating Bob and Sheila differently and the reality is that it makes no sense to treat Bob’s pension income as “income arising from employment” so that it reduces or eliminates his entitlement to Employment Insurance.
When Bob and Sheila first commenced their respective jobs, they each made their own deal. Sheila agreed to work 40 hours a week for $60,000 a year and no pension. Bob agreed to work 40 hours a week for $50,000 and a pension plan. Each week that Bob worked, he earned those pension contributions. Once they were made, he owned them.
When Bob is terminated and accesses his pension funds, it’s not like he is getting some extra perk or benefit. He worked hard for those pension contributions and earned every dime. On the date that he was terminated, he owned everything in that pension plan just like Sheila owned everything in her RRSP plan.
Bob’s pension payments are not “income arising from employment” but rather payments from an investment he worked for, for 30 years, and owns in its entirety. The only difference between Bob and Sheila is that Sheila did the administrative work of setting up her own RRSP plan and Bob’s was already done for him by his employer.
The Employment Insurance system is a complex one and, within the context of Canadian society, an important and positive one. Within the big picture, this issue is a small bug that needs to be worked out. For an employee who has contributed to EI for 30 years without ever collecting who is told that they are not eligible because of pension monies they own, it’s a huge bug.
As published in The Hamilton Spectator, July 22, 2006.