THE QUESTION
A couple of weeks after resigning from my last position, my previous employer told me I owed them $12,000 because they didn’t deduct my pension payments for the year that I worked with them. They say it’s a mandatory contribution for all their employees, so I can’t opt out. I told them I can’t afford to repay this amount and they responded by offering a monthly repayment plan. I think they messed up their payroll and forgot to make the deductions. Who should be on the hook for this?
THE FIRST ANSWER
Roxanne Davis, managing partner, Carbert Waite LLP, Calgary
A definitive answer would require reviewing your contract and the pension plan. You should ask for those documents if you don’t already have them and ask what they meant.
Here are a couple of possibilities. If your salary was $120,000 and the plan required you to contribute 10 per cent of your salary to the plan, but they made a mistake and did not deduct it from your pay, then you received $12,000 more pay than you should have. There could be a basis for requiring you to contribute that amount to the plan, but it would still be your money, it would just be held in the plan as savings for your retirement. Most plans would allow you to transfer it to an RRSP under your own control after your employment ends. You might also get an additional benefit in the form of tax savings from having that amount reclassified from employment income to a contribution to a retirement savings account.
If the company paid $12,000 to you in error in addition to making pension contributions on your behalf, then it’s possible there could be a requirement that you repay the overpayment made in error.
Under most pension plans when an employee leaves the company after less than two years of service, they are repaid the pension contributions they made plus interest. As a result, an overpayment could be repaid from a pension payout, if that is the source of the company’s demand.
THE SECOND ANSWER
Shane King, partner, McLeod Law, Calgary
This would likely hinge upon the wording in your employment agreement itself. If there is a term in it which requires them to make these deductions and thus contributions for you, they are likely obliged to do so. In this situation, the employer would be required to make the contributions and would have to seek recompense from you after the fact.
If there is no such term, the employer simply stating you must pay them and then they will make the contributions is going to be difficult for them to enforce successfully, as they appear to have no actual loss.
They would have to sue you for the money, and then make the contributions on your behalf. I would be surprised if they did this, as it is unlikely they would voluntarily make the payment, without being assured of your contribution.
If they did make the contributions, for you, but neglected to make the requisite deductions from you, there is likely a tax implication and requirement, for which you would need to consult a tax expert.
In this instance, they may sue you for the deductions, and/or for any amount owing to the Canada Revenue Agency, but you should have a strong argument against any potential penalty component.
It also depends on if you want the pension or not. Without providing financial advice, having this pension grow for you might be a good bit of financial planning.
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Andrea Yu