Businesses that are planning to establish themselves in Quebec by way of expansion or acquisition should be aware of some unique aspects of the province’s pension and benefits laws.
Employers are required to make a voluntary retirement savings plan available to their employees. In addition, provincial legislation prohibits ‘orphan’ or ‘grandfathering’ clauses that distinguish pension or other benefits available to employees based solely on an employee’s hiring date.
“Although these requirements are not always top of mind, non-compliance can prove costly,” says Mark Firman, a tax group partner in Stikeman Elliott LLP’s Montreal office.
The VRSP requirement, mandated by the Quebec Voluntary Retirement Savings Plans Act, applies to businesses with 10 or more eligible employees who are aged 18 or older and have at least one year of uninterrupted service in the province. These businesses must make a VRSP available to their employees and automatically enrol them in the plan.
“VRSPs, which are a type of pooled registered pension plan available in other Canadian jurisdictions, purport to offer all the advantages of a defined contribution pension plan but without requiring the employer to make contributions, although they may choose to do so,” Firman says.
Alternatively, the legislation allows employers to offer group registered retirement savings plans and group tax-free savings accounts or traditional registered pension plans.
While the maximum fine for non-compliance is $10,000, no employer has ever been charged since the legislation was enacted in 2014. “The regulator is in education mode, especially because making what’s required available is an easy fix,” he says.
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The orphan clause prohibition is widely understood to target defined benefit freezes based on hiring date alone. Employers can’t contract out of this requirement, but it doesn’t mean that employers have no leeway to freeze defined benefits.
“Employers can still freeze benefits for all employees — they can distinguish between establishments and they can distinguish between hired and salaried employees because the legislation only prohibits distinctions based on hiring date alone when employees are performing the same tasks in the same establishment,” Firman says.
The legislation governing orphan clauses came into effect in 2018, but it isn’t retroactive and therefore doesn’t apply to distinctions made before enactment.
“There’s always talk around about making this prohibition retroactive, but there’s no indication that this might happen in the near future,” Firman says.
Quebec regulators tend do things differently on pension matters from their counterparts elsewhere in Canada, says Julien Ranger, a Montreal-based partner in Osler, Hoskin & Harcourt LLP’s pensions and benefits group and the employment and labour group.
“Sometimes the thinking is creative and out of the box and sometimes it’s burdensome, but Quebec has a history of making valuable contributions to the debate on all sorts of pension issues. [For example] the province was the first to [do away with] solvency funding requirements and then everyone followed suit.”
Many of the fundamental differences between pension law in Quebec and the rest of Canada stems from the fact that Quebec is a civil law jurisdiction, says Natalie Bussière, a pension and benefits partner in Blake, Cassels & Graydon LLP’s Montreal office.
“In the common law provinces, trust law underpins pension law. In Quebec, the ‘fiducie’ concept that underlies pension law is different from the concept of a trust and, for example, allows Quebec pension funds to operate without a trust agreement.”