Since the financial crisis of 2008, defined benefit pension plans have been confronted with a major problem, that is the problem of solvency deficiencies. Over the last two years, this problem has been raised on several occasions by various news media. Due to the historically low long-term interest rates and the decline of stock markets, numerous defined benefit pension plans are currently showing substantial solvency deficiencies. Because the rules provided for in the Supplemental Pension Plans Act1 (the "SPPA") require most employers to eliminate these deficiencies over a 5-year period by paying additional contributions, many businesses are forced to use a significant part of their assets for the payment thereof.

To help certain employers catch their breath, temporary funding relief measures were established in 2009. These measures included, in particular, the extension of the amortization period to eliminate solvency deficiencies.

The employer had the choice of availing itself of one or more of these temporary measures and could make his choice at the time of the first actuarial valuation after December 30, 2008. Furthermore, certain conditions also had to be met, including the condition relating to minimum contributions, to make sure that the employer's contributions were not less than those that he would have had to pay had there not been the financial crisis of 2008.

The temporary funding relief measures will expire next December 31st, while the problem of defined benefit plans' solvency deficiencies is still far from being solved.

On October 20, 2011, Mr. Denys Jean, President and Chief Executive Officer of the Régie des rentes du Québec (the "Régie") stated that the Minister of Employment and Social Solidarity, Mrs. Julie Boulet, will soon be proposing that the Quebec government extend the temporary funding relief measures for a period of two to three years.

Based on the information provided, we understand that during such an extension, the Régie would try to find a more permanent solution to the problem of defined benefit plans' solvency deficiencies. This exercise by the Régie might result in a less restrictive solution for employers. According to Mr. Jean, Minister Boulet is aware of the prospective issues on the future of supplemental pension plans and she has established a work plan in conjunction with the Régie.

On November 15, 2011, the Quebec government announced that it intends to extend the temporary fundig relief measures for a period of two years, thus until December 31, 2013.

When exactly will the temporary funding relief measures be extended? Will the Quebec government take the opportunity to add new temporary funding relief measures in order to help employers breathe easier? We will likely have answers to these questions in the near future.

On the other hand, as regards the changes that the Régie might propose to attempt to settle the problem of defined pension plans' solvency deficiencies in a more permanent way, we will probably have to keep waiting for several months, or even a few years.

Footnote

1. Under An Act to amend the Supplemental Pension Plans Act and other legislative provisions in order to reduce the effects of the financial crisis on plans covered by the Act, S.Q. 2009, c. 1 and the Regulation respecting measures to reduce the effects of the financial crisis on plans covered by the Supplemental Pension Plans Act, (2009) 141 G.O. part II, 5316.

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