Canada: Quebec’s New Pension Reform Proposals: Effective Solutions In The Works?

As in many other jurisdictions in Canada, Quebec's pension landscape is in the midst of significant change driven by the issues of pension coverage, adequacy and sustainability. Notable highlights for 2013 included:

  • the release of a report by the pension expert committee mandated to analyze the state of Quebec's retirement income system and to make recommendations on how to improve it (D'Amours Report);
  • a special public consultation of the Committee on Public Finance on the D'Amours Report and the release of the Committee's own recommendations (French only);
  • a public consultation of the Committee on Public Finance on the "voluntary retirement savings plans" (or "VRSPs", Quebec's version of the pooled registered pension plans) and the adoption of Bill 39 allowing for the establishment of VRSPs effective July 1, 2014;
  • the adoption of regulations allowing for the establishment of single-employer target benefit plans in the pulp and paper industry;
  • a further extension of the "temporary" solvency relief measures for the years 2014 and 2015 for pension plans in the private, municipal and university sectors; and
  • the adoption of a series of new (and innovative) funding measures for pension plans in the municipal and university sectors.

Based on the new pension reform proposals announced last December by the Quebec government, 2014 could prove to be a decisive year in determining the future of the pension landscape in Quebec.

New Action Plan to Address the Sustainability of DB Plans

In the wake of the D'Amours Report, the key stakeholders in the pension industry (and the general population more broadly) seem to have reached a consensus that the status quo is no longer an option if we are to address the issue of the sustainability of defined benefit (DB) pension plans in Quebec. Building on this consensus, the Quebec government released a brief "action plan" on December 12, 2013 outlining the direction it intends to take to tackle this issue.

Framework for Restructuring Defined Benefit Plans

The most ambitious proposal in the government's action plan is certainly the attempt to establish a framework for restructuring DB plans. The restructuring process would be divided in four stages over a period of no more than two years according to the action plan.

  1. Between January and April 2014, three working groups will be formed (one for each of the private, municipal and university sectors). Each group will be composed of various stakeholders in the sector (e.g., employers, unions and other associations). The objective for each working group will be to: (i) determine which measures would most efficiently address the funding issues affecting DB plans in their respective sector; (ii) set parameters for the negotiation of the restructuring of DB plans in the sector; and (iii) determine the criteria that will guide the decisions of the Commission des relations de travail (Quebec Labour Relations Board) in connection with the arbitration process discussed in step 4 below.
  2. Between July 2014 and December 2014, a bargaining period will take place during which the parties will have to negotiate measures to make their DB plan more sustainable. It is still unclear which legislative changes to the Quebec Supplemental Pension Plans Act will be made to accommodate new solutions, retroactive adverse amendments, etc. The Minister did suggest that a renegotiation of accrued benefits may become an option in cases where a plan is in deficit.
  3. If an agreement cannot be reached by the parties before the end of the bargaining period (December 2014), a dispute resolution process will be triggered. The parties will then have to work with a mediator for up to six months to reach an agreement.
  4. If an agreement still cannot be reached after the mediation period (June 2015), the matter will be referred to Quebec's Labour Relations Board, which will be empowered to determine the measures to be implemented.

The government expects to table a first bill this spring to set out this restructuring framework formally (e.g., the duration of the various stages, the parameters for the dispute resolution process). A second bill could be tabled in the fall of 2014 to allow for the implementation of solutions recommended by the three working groups as well as some other recommendations from the D'Amours Report.

Funding

The Quebec government also intends to amend the funding rules for DB plans.

With respect to DB plans in the municipal and university sector, the government intends to impose a 50/50 cost-sharing arrangement between employers and employees. While all the details of this proposal are not yet known, one can reasonably expect that the employees' share will be limited to 50% of the normal cost related to future service (and not 50% of any required special payments). The current going-concern funding rules are expected to be maintained for the most part (i.e., no solvency funding required).

As for DB plans in the private sector, the government appears to be endorsing the concept of a single valuation basis. This would effectively lead to the elimination of the current solvency funding requirements for private sector DB plans and the adoption of an "enhanced" going-concern valuation, which would be a more stringent version of the current going-concern valuation.

Longevity Pension and QPP Enhancement

As discussed in a previous post, the expert committee had recommended the creation of a new public plan, alongside the Quebec Pension Plan (QPP), that would provide a defined benefit (the "longevity pension") to retired Quebec workers once they attain age 75. While the government seems open to discuss the idea further with its counterparts, it is clear that such a project would require a large degree of harmonization between provinces and the federal government, which will be quite difficult to achieve. While it did not say so in its action plan, the government appears to be more interested in discussing an enhancement of the QPP.

Conclusion

There is no doubt that a reform of the Quebec pension system is in the works, but with a minority government in place and an election looming, one can only be cautiously optimistic about the likelihood of such reform in 2014-2015 and the extent of the reform.

In particular, it must be noted that target benefit plans have unfortunately been left out of the government's action plan. While the private sector working group may try to bring this proposal to the table, the current government appears to have little appetite for this new type of pension plan at the moment. Considering that the government and the Régie des rentes have already gone through considerable efforts to develop a legal framework for target benefit plans in the pulp and paper industry, it is somewhat disappointing that they would not extend the concept to other industries and to multi-employer plans.

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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