Update from Quebec: changing the rules
June 16, 2010 | Luc Villiard

…cont’d

Since Dec. 28, 2006, municipal retirement plans and certain other public sector plans have been permanently exempt from the employer’s obligation to make payments to the plan to ensure its solvency. In other words, the employer is required only to make special payments in connection with deficiencies on a going-concern basis. However, this relief measure was accompanied by new and more restrictive funding measures on a going-concern basis, including the need to report the market value of assets when preparing the plan’s balance sheet.

Despite the elimination of funding on a solvency basis, sponsors of municipal and university plans must deal with the impact of the economic crisis just like everyone else. Many were required to conduct an actuarial valuation as at Dec. 31, 2008, without being able to take into account the 2009 market recovery. If nothing changes, employers will have to make significant new contributions to the plan on top of existing payments. In addition, following the adoption of Bill 30, the various funding rules had to be adapted to the specifics of plans that were exempt from the need to fund for solvency.

It is important to note that the published regulation proposes that the plan’s assets on a going-concern basis should be permanently divided into a general account and a reserve account. Furthermore, the same PfAD that applies to pension plans in the corporate sector also applies to municipalities and universities: a PfAD that takes into account how well the plan manages its asset/liability mismatch risk.

In light of all of this legislative activity, funding rules for DB pension plans have changed significantly for plans registered in Quebec, particularly since Jan. 1, 2010. Temporary relief measures resulting from the 2008 financial crisis must also be taken into account, adding new issues and analyses to the budget planning process. Clearly, now is the time for plan sponsors to innovate. BC

Luc Villiard is a vice-president in Aon Consulting’s Montreal office.
luc.villiard@an.ca

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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the May 2010 edition of BENEFITS CANADA magazine.