As the World Turns: Pensions, benefits, and executive compensation in 2026

The pension, benefits, and executive compensation world continues to evolve. Recent case law, regulatory activity, and governance developments are helping to shape and clarify pension, benefits, and executive compensation practices in Canada and the United States. The following is a summary of notable “soap opera-worthy” developments from 2025 and predictions for 2026 that employers, plan administrators, and in-house counsel should be aware of.

Guiding Light: Canadian pension case law update

Recent decisions address employer liability in relation to claims for lost or missing pension service, how pension buybacks are treated in family law value calculations, and the application of limitation periods in pension claims.

In Ontario Public Service Employees Union v. Ontario, the failure to submit an enrolment form due to an employer’s oversight led the Grievance Settlement Board to resolve the resulting buyback dispute by splitting the interest costs between the member and employer, holding that the employer should not bear full responsibility for the interest.

In Timmins Police Association (Uniform Division) v. Timmins Police Services, an arbitrator declined to order the employer to fund the employee’s share of pension contributions to buy back a period of pension service following a reinstatement of employment.

In Iliuta v. Li, the Ontario Superior Court included service subject to a buyback in the family law value calculation, even though the member had not yet finished paying for the service.

In Johnston et al v. Griffiths et al, the Ontario Superior Court dismissed a pension claim on the basis that the action was barred by the limitation period, as the member was aware of their termination from the pension plan and the resulting lost service many years before their retirement. A similar finding was made in Duriez v. Ottawa (City), where the Ontario Human Rights Tribunal dismissed a discrimination claim due to delay. The claim was over the amount of pension service available to buy back, and the Tribunal held that the complaint crystallized many years earlier when she received the buyback offer.

Finally, in Merrill v. OPSEU Pension Trust Fund, the Ontario Human Rights Tribunal dismissed an application alleging discrimination over the denial of a disability pension on the basis that the Tribunal does not have jurisdiction to adjudicate decisions related to eligibility for disability benefits.

General Hospital: Canadian benefits case law update

Across Canada, employers commonly cap long-term disability (LTD) coverage at age 65, and litigation continues over whether such age-based limits are permitted under federal and provincial human rights legislation. British Columbia’s Human Rights Code permits differential treatment under a bona fide group or employee insurance plan, and Ontario’s framework similarly allows age‑based distinctions within benefit plans that comply with the Employment Standards Act, 2000 (ESA). Three recent decisions illustrate ongoing uncertainty in the law.

In Okanagan College v. Okanagan College Faculty Association (BC), an arbitrator initially found the denial of post-65 LTD benefits was not protected by the bona fide plan exception under the BC Human Rights Code. However, the BC Labour Relations Board has since set aside that award, finding that the arbitrator erred in his application of the “bona fide plan” analysis (as articulated by the Supreme Court of Canada in Potash), and has remitted the matter for reconsideration, including a determination of whether the statutory exception itself infringes section 15 of the Charter. In University Health Network v. Ontario Nurses' Association (Ontario), the arbitrator upheld a Charter challenge of the ESA and Ontario Human Rights Code provisions permitting the termination of LTD at age 65, noting in part the availability of other post-65 income sources.

As more employees work beyond age 65 and modern insurance products reduce the cost of post-65 coverage, age 65 benefit cut-offs will remain a growing pressure point. However, these cases and others before them do suggest that age-based limits for LTD plans are more likely to withstand challenge.

Another World: US pension law update

In Spence v. American Airlines, Inc., a US District Court held that fiduciaries of a 401(k) retirement plan breached their duty of loyalty under the Employee Retirement Income Security Act of 1974 (ERISA) because their fiduciary decisions relating to plan investments were not fully independent of their corporate ESG priorities. Although this ruling has no direct bearing on Canadian pension plans, it serves as a reminder that pension investment decisions should not be improperly influenced by the plan sponsor's corporate ESG commitments.

In August 2025, President Trump issued an executive order directing certain government agencies to issue rules intended to facilitate access to private capital, real estate, digital assets, and other alternative assets for 401(k) plan participants. In response, the US Department of Labor issued a proposed rule that, if finalized, would provide 401(k) plan fiduciaries with a safe harbour process for selecting designated investment alternatives, including alternative asset classes.

The Young and the Restless: regulatory update in pensions

Pension regulators, including the Ontario Financial Services Regulatory Authority (FSRA), are flexing their regulatory muscles and actively engaging with the sector.

FSRA took enforcement action against Higginson Equipment Inc. for failing to remit approximately $9,500 in pension contributions, imposing $19,000 in penalties and ordering a wind‑up. Higginson has appealed these actions.

FSRA published a list of applications it received to register retroactive plan amendments, explaining whether it decided to register the amendments or not and the reasons for its decisions. Generally, shorter delays between the effective date and filing, no or little impact to plan members, prior notice to members of the amendment, and transparent communication to members and unions about the impact of the late filing were positive factors supporting registration.

The International Monetary Fund conducted a Financial System Stability Assessment for Canada and released its report on August 1, 2025. The assessment focused on systemic risks and vulnerabilities, financial sector oversight, and crisis preparedness and management in Canada’s financial system, which includes pension funds. It included several observations on the regulation of Canadian pension plans. It reaffirmed the resilience of Canada’s pension system while calling for enhanced oversight, data reporting, and stress testing, suggesting increased regulatory engagement for pension funds, particularly around liquidity and real‑asset exposure.

All My Children: Canadian tax update

Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025, received Royal Assent on March 26, 2026. Bill C-15 includes amendments to the Income Tax Act (Canada) to exempt trusts governed by retirement compensation arrangements (RCAs) from the annual beneficial ownership reporting requirements if the primary purpose of the RCA is to supplement the benefits provided out of a registered plan. This amendment applies to taxation years ending after December 30, 2025.

The Registered Plans Directorate also announced that it will now accept digital signatures on all documents and forms, including the T920 "Application to Amend a Registered Pension Plan". The digital signatures must (i) provide identity authentication of the signatory; (ii) ensure the integrity of the signed document; and (iii) be affixed to the document by the signatory. Signature images and clipart will not be accepted as a form of digital signature.

Dark Shadows: responsible AI governance and risk mitigation

Canada does not yet have dedicated AI legislation, but the development, licensing, monitoring, and use of AI is regulated through existing IP, privacy, human rights, and employment laws, as well as industry-specific frameworks. The Office of the Superintendent of Financial Institutions, FSRA, and the Canadian Association of Pension Supervisory Authorities have each released guidance addressing AI and advanced analytics in financial services and pension administration. Organizations deploying AI should develop responsible AI policies, operational procedures for AI use, vendor contracting frameworks, employee training programs, and sandboxing protocols to test AI tools before deployment. Common AI use cases and their associated risks include member-facing chatbots, investment analysis tools, back-office automation, and HR applications such as resume screening or performance analysis. Plan administrators and employers should assess their current and planned AI use cases, document governance frameworks, and ensure appropriate human oversight remains in place throughout the procurement, testing, implementation, and operational lifecycle, particularly for decisions affecting plan members, employees, or beneficiaries.

The Bold and the Beautiful: executive compensation governance update

Executive and director compensation remains an area of heightened governance and regulatory scrutiny in both Canada and the United States.

In Canada, the Canadian Coalition for Good Governance released a revised Executive and Director Compensation Guidebook in late 2025, emphasizing the organization’s preference for at-risk, performance-based compensation and longer vesting and hold periods, and for limiting the use of stock options and special awards. ISS clarified that shareholder approval is expected if an issuer cancels and re-grants options (viewed as a repricing), and recommended that director deferred share unit plans permitting treasury share settlements should explicitly state that deferred share units can only be awarded in lieu of cash fees on a value-for-value basis. Starting in 2027, Glass Lewis will publish various versions of its proxy voting guidelines based on client preferences, which may lead to greater uncertainty for issuers contemplating changes to compensation programs in the future.

In the US, a recent advisory opinion by the Department of Labor clarified that deferred compensation awards that could be paid during employment would generally not give rise to ERISA‑governed pension plans. Meanwhile, a recent roundtable by the US Securities and Exchange Commission (SEC) highlighted concerns about the complexity of current executive compensation disclosure rules, suggesting potential reform by the SEC may be forthcoming in the future. At the state level, effective January 1, 2026, California law restricts the employer’s ability to require repayment of sign‑on and retention bonuses.

End credits

The developments outlined above reflect continued evolution across key areas of pension, benefits, and executive compensation law. Periodic reviews of plan documents, policies, and governance practices can help ensure they remain aligned with current legal requirements and evolving regulatory expectations.

The key developments discussed in this bulletin were summarized from our seminar, "Pensions, benefits and executive compensation: 'As the world turns'” held on February 3, 2026. If you missed it, a recording is available through the Torys CPD library.