Back in 2009, the Quebec government adopted measures to
alleviate the effects of the 2008 financial crisis on the funding
of defined benefit (DB) plans. These measures allowed an employer
to instruct a plan's pension committee to implement one or more
of the following measures for the first complete actuarial
valuation dated after December 30, 2008:
Use of a "smoothing" method (i.e., averaging method)
to value plan assets on a solvency basis over a 5-year period
rather than using the current market value;
Consolidate certain solvency deficiencies; and
Extend the amortization period to eliminate the new solvency
deficiency from 5 to 10 years.
These measures were due to expire at the end of 2011.
Considering the historically low interest rates now prevailing and
the mixed investment returns over the last few years, many DB plan
sponsors would be placed in a very difficult situation if they were
required to perform their next valuation in accordance with the
regular solvency funding rules.
Last week, the Quebec government announced its intention to
extend the temporary solvency relief measures for an additional
period of two years (i.e., until December 31, 2013). The other
details of the proposal have not yet been released.
The government will also extend for two more years the special
settlement option available to certain plan members and
beneficiaries who participate in an underfunded plan that is
terminated in connection with the bankruptcy or insolvency of their
employer. In these circumstances, such members and beneficiaries
can elect to have their reduced benefits paid by the Régie
des rentes du Québec. The assets attributable to those who
elect this option are to be administered and invested by the
Régie during a prescribed period and will then be used to
purchase annuities at a time when the annuity market is (hopefully)
more favourable. The Régie is thereby assuming the risk of a
further deterioration in economic conditions.
prior post for more details regarding this settlement option
and Bill 42 for more details regarding the
Further Pension Reform on the Horizon?
As part of its announcement, the government also indicated that
it would take the two-year extension as an opportunity to review
the Quebec Supplemental Pension Plans Act in light of the
new economic and demographic realities. The government has directed
the Régie to establish an independent expert committee to
study the various problems affecting DB plans, and to propose a
series of changes to the current legislation that would improve the
viability of DB plans in Quebec. That being said, no reform is
expected to occur before 2014.
Julien Ranger-Musiol advises employers, pension
fund administrators and service providers on issues such as plan
mergers, use of surplus assets, contribution holidays,
administration expenses and plan administration and compliance.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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