Employers Beware

The SPPA applies to all plans with Quebec members, regardless of the jurisdiction where the plan is registered. For MEPPs, this means the financial obligations of employers with Quebec members may be greater than those in other jurisdictions.

MEPPs are generally set up by a union, and participating employers contribute to the plan through their collective agreements. Many MEPPs are a combined defined benefit (DB)/defined contribution pension plan, or hybrid plan: the plan promises a pension while the contractual obligation of the employer is limited to paying the contribution outlined in the collective agreement. For purposes of the SPPA, however, this type of plan is treated as a DB plan, which means that employers are also subject to statutory financial obligations.

In many cases, employers were told that their financial obligations were limited to paying the contribution provided for in the collective agreement. However, this isn’t accurate. Under the SPPA, the employer is responsible for funding DB plans, and the funding rules that apply to MEPPs are the same as those that apply to single-employer pension plans (SEPPs). Therefore, the sum of the employee and employer contributions must be sufficient to cover both the current service cost and special payments for a given year.

If contributions are insufficient, it’s possible to make certain adjustments, such as reducing pension benefits for future service. However, contrary to the rules in other provinces, MEPP members’ accrued benefits cannot be reduced. Consequently, if the contributions are insufficient to fund those benefits, they will have to be increased.

The SPPA also indicates that special payments to amortize solvency deficiencies must be made by the employer. Similarly, if a participating employer withdraws from a MEPP—that is, if its participation in the plan is terminated—the employer must pay its share of any pension plan deficit, just as an employer must do in the case of the termination of a SEPP.

In April 2008, the Quebec Court of Appeal bent the principle of non-reduction of accrued benefits in its decision in the Multi-Marques case. The Court held that a pension plan can determine that member benefits payable on plan windup are conditional on full funding of such benefits, thereby opening the door to some reduction of accrued benefits upon the withdrawal of an employer from a MEPP. However, in June 2008, Bill 68 introduced amendments to the SPPA to prohibit the inclusion of provisions (in DB or hybrid plans) that would make the rights of members and beneficiaries conditional upon external factors with the result that those rights could be limited or reduced, or that would limit or reduce the obligations of an employer because of its withdrawal from, or termination of, the plan.

This situation isn’t new; it has existed since the SPPA came into force in 1990. However, with the current financial state of pension plans, MEPP administrators no longer have any leeway, and employers may face additional disbursements.

Martin Rochette is a senior partner with Ogilvy Renault LLP and is co-chair of Ogilvy’s pension and benefits plans practice in Montreal.
mrochette@ogilvyrenault.com

> click here for a PDF version of this article

© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the May 2009 edition of BENEFITS CANADA magazine.