Canada: Multi-Employer Pension Plans Completely Overhauled By Quebec’s Bill 34

Introduced in Quebec's National Assembly on February 18, 2015 by the Minister of Employment and Social Solidarity, Bill 34 – An Act to amend the Supplemental Pension Plans Act with respect to the funding and restructuring of certain multi-employer pension plans ("Bill 34") has completely transformed the legislative rules applicable to multi-employer pension plans.

The Bill was supported by all political parties and fast-tracked through the legislature in light of the urgency of bringing Quebec legislation in line with the rules applicable to multi-employer pension plans in many other Canadian provinces. Bill 34 was adopted on April 2, 2015, but is effective as of December 31, 2014.

The key changes to the Quebec legislation are described below.

1. Funding rules and restructuring

a. General principles

Bill 34 allows for the retroactive reduction of benefits of both active participants and retirees in order to reflect a plan's deficit. This legislative change was essential in the current economic context to avoid employers withdrawing from such plans and some plans having to be wound up.

To ensure the continued viability of such plans, Bill 34 establishes the following basic funding rules:

  • Multi-employer pension plans will only need to be funded on a going-concern basis.
  • Solvency deficiencies will no longer need to be funded.
  • The amortization period for funding deficiencies will be 12 years instead of 15 years.

Furthermore, if an actuarial valuation report indicates that contributions are insufficient, Bill 34 requires the plan to be restructured, most likely leading to changes in collective agreements. A recovery plan will be required, specifying the measures that need to be taken to ensure the plan's funding complies with the law. These measures may include an increase in employer or member contributions or an amendment to reduce benefits for past or future service.

In addition, a recovery plan generally must go through a consultation process, and may only be adopted if fewer than 30% of the members and beneficiaries oppose it. However, such consultation is not required in certain situations, including when a plan text registered with a pension regulator outside Quebec already includes a provision allowing for the reduction of benefits accrued to members and beneficiaries.

b. Deadlines for various key steps

Valuation reports as at December 31, 2014 (for example) must be sent to the Quebec regulator (the Régie des rentes) by October 31, 2015, i.e. within 6 months after April 30, 2015 (which is the last day of the month of the date of assent of the Act, as required by Bill 34). Going forward, this 6-month period will be calculated from the date of the actuarial valuation.

If a recovery plan is required, it must be sent to the regulator by October 31, 2016, i.e. within 18 months after April 30, 2015. Going forward, this 18-month period will be calculated from the date of the actuarial valuation indicating that contributions are insufficient.

An application for registration of amendments to the plan for the purpose of implementing the recovery plan must be filed with the regulator by April 30, 2017, i.e. within 24 months after April 30, 2015. Going forward, this 24-month period will be calculated from the date of the actuarial valuation indicating that contributions are insufficient.

Although there are deadlines for various steps and penalties for not meeting them, the key thing to remember is that if everything is not filed with the regulator by December 31, 2019, i.e. within 60 months of the date of the actuarial valuation indicating that contributions are insufficient, the plan must be wound up.

2. Withdrawing employers, orphans and payment of benefits

In order to support the funding of these plans going forward, Bill 34 sets out rules regarding withdrawing employers, orphaned participants and the payment of benefits. 

On the one hand, if an employer is forced to withdraw from the plan (in one of the ways stipulated in Bill 34) the participants connected to that employer will be paid out in proportion to the degree of solvency of the plan as established in the last actuarial valuation report filed with the regulator (which could be more or less than 100%). This is a significant change from current requirements.

On the other hand, if an employer chooses to withdraw from the plan, the participants connected to that employer will be paid out in proportion to the plan's degree of solvency. However, in order to avoid having employers take undue advantage of this opportunity, Bill 34 stipulates that they cannot benefit from these new provisions for the next 5 years.

In addition, in an effort to clean up certain plans, the transitional provisions of Bill 34 require employers to withdraw from the plan (effective December 31, 2014) if they have no active participants on December 31, 2014 (or for at least 12 months for employers of temporary employees). Furthermore, any participant who on December 31, 2014 is not connected to an employer that is a party to the plan will be given the option to maintain their benefits in the plan.

However, going forward, an employer will be required to withdraw from the plan as soon as it no longer has any active participants (or for 12 months for employers of temporary employees). In such event, the participants connected to that employer will be paid out in proportion to the plan's degree of solvency. Moreover, going forward, as soon as participants are no longer connected to an active employer, they must then be paid out in proportion to the plan's degree of solvency.

Final thoughts

Bill 34 brings Quebec legislation in line with the rules applicable to multi-employer pension plans in many other Canadian provinces, which will help ensure the continued viability of such plans.

It is important to note that Bill 34 contains a myriad of detailed rules, exceptions and transitional provisions, some of which are discussed above. Administrators of every multi-employer pension plan in Canada (whether or not it is Quebec-regulated) will need to review Bill 34 carefully to determine which provisions apply to their specific situation and evaluate their impact.

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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