Bill 30: Québec Revises Its Supplemental Pension Plans Act
By: Natalie Bussière
When the Québec National Assembly adopted, on December 13, 2006, An act to amend the Supplemental Pensions Plans Act (SPPA), particularly with respect to the funding and administration of pension plans (Bill 30), it modified numerous sections of that act. The result is some of the current practices of plan sponsors and administrators will require revision.
In Québec, as elsewhere, many Defined Benefit pension plans face important solvency deficiencies. These deficiencies are not caused by mismanagement or bad decisions by pension plan administrators, but by economic circumstances beyond their control. However, the act requires the funding of such solvency deficiencies over a five-year period which created an additional financial burden for pension plan sponsors.
Temporary relief was granted in 2005 when the Québec National Assembly adopted the Act respecting the funding of certain pension plans. This act provided temporary rules on the funding of solvency deficiencies, including the possibility of combining prior solvency deficiencies with a newly disclosed one and extending the maximum amortization period to 10 years for solvency deficiencies, if specific conditions were met. The provisions contained in this act were meant to apply for a limited time and a revision of the funding rules for DB pension plans provided in the SPPA was, accordingly, expected.
New Rules Pertaining To Funding
Effective January 1, 2010, DB plans will have to submit an annual actuarial valuation, unless the plan is fully solvent and funded, in which case a partial valuation may be performed. Bill 30 also requires the creation of a provision for adverse effects. This provision will accrue from the actuarial gains that are expected to appear over time. Accordingly, the Régie des rentes is of the opinion that the creation of the provision for adverse effects will not require the payment of additional contributions by plan sponsors. However, until the provision for adverse effects is fully accumulated, the employer will not be allowed to take any contribution holidays.
Bill 30 also provides that any modification that will make the solvency level of a DB pension plan fall below 90 per cent will require a special contribution payable to the pension fund. Such contribution will be payable in full on the day following the date of the evaluation in relation to the modification and will have to be sufficient to bring back the plan’s solvency level to 90 per cent.
The amortization period for a solvency deficiency is maintained at five years. However, employers will be allowed to provide a letter (or letters) of credit that will be considered part of the assets of the pension plan for determining its solvency. The total amount of the letter (or letters) of credit may not exceed 15 per cent of the value of the plan’s liabilities.
Unfortunately, these measures will not ease the financial burden of employers participating in a DB pension plan. It appears that, at least for the time being, the funding rules were not relaxed in order to protect the benefits of members and beneficiaries of existing plans. Such measures do not make DB pension plans an attractive benefit for employers.
Additional Amendment Requirements
A group of retirees made it publicly known they would lobby for changes to the SPPA further to the decision of the Court of Appeal in Association provinciale des retraités d’Hydro-Québec v. Hydro-Québec. This decision did not satisfy retirees who were claiming that modifications to an ongoing pension plan should be equitable for all groups of members. Bill 30 specifically provides for new requirements in relation to modifications to a pension plan.
Effective January 1, 2010, all members and beneficiaries of a pension plan must receive a notice explaining the nature of any amendment to the pension plan affecting any surplus assets before such amendment can be registered. If 30 per cent or more of the members of a specific group oppose such an amendment, it is deemed not to be equitable and not in compliance with the applicable legal requirements.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -