Anonymised, illustrative composite. The sale terminated nobody. Eight months later the buyer cut fourteen roles, and six carried a second price the severance model could not see.
At a glance
A mid-market industrial group bought an Ontario metal-fabrication business on an asset purchase at $14.2 million: a 94-person Ontario plant, an 18-person Alberta machine shop, and a legacy defined benefit pension plan, closed to new entrants in 2005, with 61 of the 112 employees still members.
The closing terminated nobody. Under the Ontario Pension Benefits Act s.80(3), where a member of the original plan becomes an employee of the successor employer and a member of the successor plan, “his or her employment is deemed, for the purposes of this Act, not to have been terminated by the change of employer”. The Employment Standards Act, 2000 s.9(1) deems the same thing for employment standards and carries the seller’s service to the buyer — see what an asset buyer inherits on statutory severance.
The hundred-day plan eliminated 14 roles in month eight, modelled the way post-closing reductions almost always are: statutory notice (ESA s.57(h) tops out at eight weeks), statutory severance (s.65(5) caps it at 26 weeks’ regular wages), and a common-law top-up. That produced about $415,000, and as a severance model it was right.
It had no line for the pension plan. Six of the 14 cleared the test in s.74, and for those six the statute converted a deferred pension, reduced for early commencement, into the subsidised pension the member would have earned had the job continued. That cost is not paid in the termination letter. It is paid into the pension fund, on a schedule the plan actuary sets.
Section 74(2) requires the test to be measured to the month — “one-twelfth credit shall be given for each month of age and for each month of continuous employment or membership on the effective date of the activating event”. Run that way, the 14 split cleanly in two.
The plant manager is where the money was. The plan pays an unreduced pension at 60 with 25 or more years’ service, reduced 4% for each earlier year. Section 74(1.3)(b)(ii) entitled him instead to the pension beginning at “the date on which the member would be entitled to an unreduced pension under the pension plan if the activating event had not occurred and if the member’s membership continued to that date”. Section 74(3) added the bridge benefit, because he has more than ten years’ service. The actuary put the extra liability at about $310,000 for him and $1.14 million for the six.
Those actuarial figures are illustrative and do not generalise. Grow-in cost is a function of one plan’s subsidy and bridge; a plan with neither produces almost none of it, and the Act sets no dollar figure anywhere.
Section 74(1) lists the activating events; paragraph 2 is the one that mattered: “The employer’s termination of the member’s employment, if the effective date of the termination is on or after July 1, 2012”. The benefit follows in s.74(1.3): “A member in Ontario of a pension plan whose combination of age plus years of continuous employment or membership in the pension plan equals at least 55 on the effective date of the activating event has the right to receive” the pension in clauses (a) to (c). Four things are easy to get wrong, and three are questions about what unit the section governs.
The one exclusion is not a redundancy exclusion. Section 74(1.1) removes the activating event only where “the termination is a result of wilful misconduct, disobedience or wilful neglect of duty by the member that is not trivial and has not been condoned by the employer”. Nor will the plan text hold the line: many plans make a subsidised early pension conditional on the employer agreeing, and s.74(7) deems that consent given.
The buyer stopped after eight of the fourteen and had the actuary score all 61 members before the later phases. Twenty-three more sat within five points of the threshold. Two phases were resequenced away from point-qualifying members and the maintenance lead was redeployed to Alberta. The plant manager’s termination went ahead and the grow-in was paid — priced rather than discovered. On the next add-on it became a diligence deliverable and a specific indemnity. See also long-service staff with no written contracts.
Run as drafted — 31 roles across three phases — the estimate was around $2.9 million, none of it negotiable after the fact. Grow-in is not a payment a release can settle. It is an entitlement under the plan, funded by the employer.
The obvious escape is the worst one. Winding the plan up is itself an activating event under s.74(1) paragraph 1, and s.74(1) applies to a person who ceases to be a member on its effective date. It delivers grow-in to every qualifying member in Ontario — crystallising across all 61 what was a cost on six.
The tell is not in the payroll file, where the integration team was looking. It is in the plan text, and it is one question: does the plan offer a subsidised early-retirement pension, a bridge benefit, or both? If neither, grow-in costs little — s.74(1.3) and s.74(3) can only hand a member benefits the plan already contains. If both, and a 1980s plan usually does, every future termination carries a second price tag.
The second is one column added to the employee schedule: age plus service, in months, at the projected termination date. This buyer held age and service in two spreadsheets and never added them together.
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