Several Quebec municipalities, including Laval and Montreal, have suspended indexation on retirees’ pension plans, effective Jan. 1, 2017.
Many defined benefit pensions plans provide indexation on an annual basis to cover the rising costs of living. The change is in accordance with Law 15, which was passed in 2014, that required municipalities to stop indexation for future service and capped the value of pension plans at 18 per cent of payroll.
A coalition of municipal unions have filed a motion to have Law 15 declared unconstitutional, says Julien Ranger, a partner in Osler Hoskins & Harcourt LLP’s pension and benefits practice in Montreal. “The unions are alleging that this is contrary to their freedom of association,” he says, summarizing their argument that the Supreme Court has said the right of association provides for the ability to bargain for employment conditions, including issues such as indexation.
Read: Quebec introduces bill to reform municipal pension plans
While Law 15 requires municipalities to stop indexation for future service, they only have to suspend it for retirees if the plan had a deficit on Dec. 31, 2013.
The changes brought about by Law 15, along with positive returns from pension funds between 2012 and 2015, will allow the City of Montreal to save $69.2 million, the municipality’s 2017 budget notes. Of that, $63.9 million reflects reductions in pension spending.
Removing indexation for retirees’ pensions will save the City of Laval $10.9 million in 2017, a municipal spokesperson told Courrier Laval.
Gatineau, which continues to index its pensions, is making an additional $2 million in contributions in 2017, its budget notes.
Read: Quebec should scrap municipal DB plans: report
“We ask that you uphold these commitments, as have done many other municipalities, including the city of Gatineau,” retired City of Montreal workers wrote in a letter to Mayor Denis Coderre in October 2016.
“Now that we are already retired and it is no longer an option for us to extend our working lives, suspending pension indexing would be an unfair, immoral and, in our opinion, illegal move on the mayor’s part. This decision would leave us to face unforeseeable impoverishment.”