Quebec report - a new decade in Quebec pension law

In Quebec, the end of the last decade was marked by the convergence of two major pension law initiatives. The first one, the remnants of Bill 30, is a set of measures enacted in late 2006 that, given their impact on plan financing, only came into effect on Jan. 1, 2010. Pulled in from another era, when surpluses flourished and angry retirees demanded equal treatment, these new legislative provisions introduce important changes to basic plan standards applicable to practically all private pension plans in the province and will substantially change the face of pension law in the long term.

The second initiative is a specific intervention to defuse the effects of the fall 2008 financial crisis, which had a severe impact on plan sponsors and administrators. The Minister of Employment and Social Responsibility urgently tabled a bill at a special National Assembly parliamentary session on Jan. 14, 2009, to alleviate the effects that the market meltdown was having on the assets of private pension plans and the corresponding obligations on sponsors to fund shortfalls. Known as Bill 1, this legislation relied on future regulations that were ultimately adopted on Nov. 26, 2009. Given their provisional nature, the measures in Bill 1 have expiry dates ranging from 2012 to 2018.

At the start of this new decade, we are witnessing the convergence of two parallel sets of rules in the legal landscape pertaining to pension plans in Quebec. Let’s briefly examine each set.

Bill 30
Many provisions of Bill 30 came into effect in 2007—in particular, the provisions relating to pension committees and the liability of committee members. However, the chapter relating to plan funding was suspended to give the pension community time to adjust.

The changes are major: actuarial valuations must now be prepared annually unless the plan is solvent; plan sponsors must create a reserve in the pension fund as a cushion for future drops in value; and amendments enhancing benefits that bring the plan below a 90% solvency ratio require an immediate special payment. The new decade also marks the introduction of the “equity principle,” whereby the use of surplus to fund benefit enhancements must be equitable to all plan members, active employees and retirees alike.

Bill 1
This bill was rushed through the legislature to respond to the economic storm that enveloped the pension community across Canada. In a rapid response, the Quebec government delivered a little something for everyone.

For active members and retirees, Bill 1 sets up a unique and innovative mechanism to deal with deficits in pension plans that terminate in bankruptcies and insolvencies. The reality is that even employees who are covered by defined benefit plans can suffer a permanent pension reduction when their employer goes bankrupt or becomes insolvent. In such cases, the reduction in pension usually corresponds to the degree of solvency of the plan fixed at the date of the plan termination.

Bill 1 allows these plan members to ask the Régie des rentes du Québec (the Quebec pension regulator) to manage their pension assets beyond the date of termination, up to a maximum of five years, in the hope that a future rise in asset values will offset the final pension reductions. This special measure is applicable to pension plans that wind up between Dec. 30, 2008 and Jan. 7, 2012.

For plan sponsors and administrators, Bill 1 relaxes a number of restrictions relating to the fund’s assets and liabilities. It allows the retroactive application of the new standards of practice of the Canadian Institute of Actuaries to any actuarial valuation undertaken after Dec. 30, 2008, thereby reducing plan liabilities—sometimes by up to 3%. It permits the use of smoothing, which can positively influence the value of assets in the medium term. Bill 1 also gives plan sponsors the option to consolidate actuarial deficits and prolong the amortization of any consolidated deficit over a 10-year period instead of the normal five-year period. These measures can be used to effectively achieve some reduction of the employer’s special contribution payments to the pension fund in critical economic times. BC

Dominique Monet is a partner and the national labour employment and human rights practice group leader with Fasken Martineau DuMoulin LLP.
dmonet@fasken.com

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