The recent adoption of Bill 30 by Quebec’s National Assembly will make the province’s pension standards even more unique compared to other pension legislation in Canada, says Jacques Lafrance, principal at Towers Perrin.
One of the most unusual amendments is a requirement to treat active members and retired members equally when plan sponsors use surplus assets to fund plan improvements, he explains.
Also, sponsors must make a special amortization payment to the pension fund immediately when the solvency ratio dips below 90%.
“Quebec is already somewhat unique because we have a pension committee requirement for the administration of pension plans,” Lafrance says. “They increased that uniqueness by imposing quite stringent governance standards on pension committees.”
One of the other important changes is that employers will be able to use a letter of credit to fund contributions. The amount of the letter, or the total amount of such letters, may not case exceed 15% of the value of the liabilities of the plan.
The changes mainly affect pension plans producers in Quebec. “But there are rules that we aren’t certain how they would apply to pension plans with both Quebec and Ontario employees,” he explains. “The rule I’m thinking of is the equitable treatment of plan members. Even though this rule applies only to Quebec members, how do you apply it when you also have Ontario members in the same plan?”
“For instance, because you have union negotiations in Ontario and you decide to improve benefits for Ontario members only because the union members are only in Ontario, would the Quebec members have some sort of veto right to this improvement because of this rule? We don’t know the answer.”
Despite some uncertainty, Lafrance believes the changes in the Quebec could lead to changes in other provinces.
“Quebec often has been the leader in terms of changes in legislation and has been followed by other provinces,” he says. “Obviously, it will be interesting to see what the other provinces will do.”
BILL 30 PRIMER
What is Bill 30? The purpose of this bill is to improve the funding of pension funds in order to protect the pension benefits of plan members and beneficiaries. A further purpose of the bill is to enhance the governance of pension plans and better define the scope of the responsibilities of pension committee members and other persons involved in the administration of pension plans.
What does it mean for plan sponsors? The bill introduces a number of measures dealing with the solvency of pension plans. It requires accelerated funding of any amendment to a pension plan whose cost causes the solvency of the plan to drop below a certain threshold determined by the bill. It also requires that a pension fund maintain a provision for adverse deviation to provide adequate coverage for the risks associated with market fluctuations. On the other hand, the bill offers some flexibility to employers by allowing them to use a letter of credit to fulfill part of their obligations as to the funding of a pension plan.
The bill also provides that any appropriation of the surplus assets of a pension plan to the funding of an amendment to the plan must be equitable both for the group of active members and for the group of non-active members and beneficiaries. Under the bill, the optional confirmation procedure already established by the Act as regards the employer’s right to a contribution holiday become applicable to this type of appropriation of the plan’s surplus assets. In addition, the bill requires pension committees to establish and observe specific governance and operation standards. The bill contains additional rules to protect and compensate pension committee members in liability matters.
When did it take effect? Most of the changes aren’t effective until 2010 except for the governance changes, which take effect immediately.
To read the bill, click here.
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