Bill 30 contains certain measures designed to ease the increased solvency funding costs, such as allowing employers to achieve the PFAD targets over time through future experience gains, and permitting the use of letters of credit(up to 15% of the plan’s solvency liabilities)in lieu of solvency contributions. Given the many pressures facing DB plans and the 2006 trend in many other jurisdictions to provide solvency relief, it is surprising the Quebec government’s response was to toughen up the solvency funding measures without addressing employers’ perceived asymmetry between responsibility for deficits and use of surplus. While Bill 30 may not result in direct cost increases to plan sponsors, quite clearly it is more restrictive over the use of surplus as only surplus in excess of the PFAD may now be used for contribution holidays/benefit improvements.
PLAN AMENDMENTS
Another controversial aspect of Bill 30 is that any use of surplus for benefit improvements must be equitable between active and non-active members(e.g., it would not be permissible to give a benefit improvement to active members without also giving some benefit to, or at least considering the interests of, retirees). One wonders whether, in these restrictive circumstances, any benefit enhancements will be provided by employers in the future.
The current SPPA regulations allow the funding rules of the province of registration to apply. So these provisions regarding funding should not apply to national plans registered in other jurisdictions. But it’s not yet clear whether Quebec will change its current exemptions to more broadly apply to its new funding rules or whether and how the equitable benefit improvement rules will apply to plans registered in other jurisdictions. Both amendments come into force on Jan. 1, 2010, which should give employers some time to plan accordingly.
PLAN GOVERNANCE
Bill 30 also brings about novel reforms, which make Quebec the first jurisdiction in Canada to “legislate” governance requirements. Now every pension committee in Quebec will be required to adopt, by Dec. 13, 2007, an internal bylaw addressing issues such as risk management, internal controls and rules for the selection, remuneration, supervision and evaluation of service providers.
Much to the consternation of investment managers, trustees and actuaries alike, Bill 30 provides that any attempt by a service provider that exercises discretionary powers of the pension committee to limit its liability in its contract with the pension committee will be null and void. This could have significant implications on existing contractual arrangements between pension plan administrators and their service providers.
Most important, there is no provision under the SPPA, which would exempt multi-jurisdictional plans from the Bill 30 plan governance requirements(which took effect in December 2006). How these rules will be applied going forward will be an issue of great interest to many pension plans across Canada.
The Bill 30 reforms are likely to reshape the pension industry in many ways, in particular the way that pension committees interact with the plan sponsor and service providers. It remains to be seen whether other jurisdictions will follow suit(pension reform will be under consideration in Ontario in 2007)or whether Quebec will continue to be a distinct nation when it comes to pension regulation.
Paul Litner is a partner in the pension and benefits department at Osler, Hoskin & Harcourt LLP in Toronto. plitner@osler.com
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