1. Supplemental Pension Plans Act changes
On June 11, 2015, the Quebec government introduced Bill 57, An Act to Amend the Supplemental Pension Plans Act Mainly with Respect to the Funding of Defined Benefit Pension Plans. Bill 57 was enacted into law on November 26, 2015 and came into force on January 1, 2016.
Bill 57 mainly affects private-sector defined benefit pension plans. Some of the principal changes made to the Quebec Supplemental Pension Plans Act by Bill 57 can be summarized as follows:
Funding
- All private sector pension plans (except those to which the general funding rules provided for by Chapter X of the SPPA do not apply) will be required to undergo a complete actuarial valuation as of December 31, 2015, in accordance with the new rules in force on January 1, 2016.
- Funding on a solvency basis is no longer required.
- A plan’s solvency must still be determined for specific purposes.
- A stabilization provision (reserve account) must be established on a going-concern basis in accordance with pending regulations.
- Actuarial valuations must be carried out every three years, or annually if the plan’s solvency ratio is less than 90 per cent.
- Notice of the financial position of the plan must be filed within four months after the end of each plan’s fiscal year for which a complete valuation is not required.
- The amortization period will go from 15 to 10 years (10 years by December 31, 2020).
- The person or body who may amend the plan must establish a written funding policy in accordance with the regulations, review it regularly and send it to the pension committee, without delay.
Surplus Assets
- Bill 57 provides for specific rules regarding both the use of surplus assets while the plan is ongoing and the allocation of surplus assets on plan wind-up.
- The surplus distribution process on plan wind-up (surplus sharing agreement, notice in a daily newspaper, arbitration process, etc.) is repealed.
- New rule introduced providing that plan members must be informed and consulted before any plan amendment is made to the provisions regarding the use of surplus assets while the plan is ongoing or regarding allocation of surplus on plan wind-up.
Transfer of commuted values
- If a plan member or beneficiary exercises portability, his/her commuted value shall be paid in proportion to the plan’s solvency ratio, without any residual benefits to be funded and paid by the employer.
- If a plan member or beneficiary does not have the option of maintaining his/her benefits in the plan, the value of his/her benefits shall also be paid in proportion to the plan’s solvency ratio, but any residual benefits shall be funded and paid by the employer.
- A plan may provide for the payment/transfer of commuted values in a proportion that is greater than the plan’s solvency ratio.
Annuity purchase policy
- Payment of benefits in accordance with an annuity purchase policy that meets the requirements to be prescribed by regulation will constitute a final payment (i.e. a discharge).
- Such policy may only apply to pensions that are in payment (or an application for payment of the pension has been made) on the date of the agreement with the insurer.
Governance
- Investment policy must take into account the funding policy.
- Internal by-laws of the pension committee have to set out the measures to be taken to quantify risks (in addition to the measures to manage risks).
DC plans
- It will be possible for DC plans to pay variable benefits from a member’s account on the conditions and within the time period that will be prescribed by regulation.
2. Changes to university-sector defined benefit pension plans
On November 11, 2015, the Quebec government introduced Bill 75, An Act respecting the restructuring of university-sector defined benefit pension plans and amending various legislative provisions. Special consultations and public hearings on this bill were held in December 2015 and February 2016.
Bill 75 essentially provides that all university-sector DB plans must be restructured no later than December 31, 2017, in accordance with the rules and processes provided therein in order to improve risk management and to help redress the financial situation of certain plans to ensure their sustainability.
Some of the key elements of Bill 75 can be summarized as follows:
- Mandatory actuarial valuation as of December 31, 2014.
- A stabilization fund must be established on January 1, 2015, for post-2014 service.
- From January 1, 2018 onward, total contributions for post-2014 service must be shared 50/50 between the employer and the active members, with some discretion for agreeing to attribute a greater percentage to the employer (up to 55 per cent).
François Parent is a partner with Lavery, de Billy LLP.