Canada: Amendments To Québec Pension Legislation Will Have Wide Ranging Impacts

Originally published February 5, 2007

On December 13, 2006, the Québec National Assembly adopted an Act to amend the Supplemental Pension Plans Act, particularly with respect to the funding and administration of pension plans ("Bill 30"). This legislation is expected to have relevance for any pension plan with members in Québec. Effective on the date of its adoption, Bill 30 imposes on all pension committees new governance standards which will materially affect the manner with which those committees administer pension plans and the committee members’ responsibilities. In addition, as of January 1, 2010, defined benefit plans funding standards will be substantially amended. Finally, Bill 30 will impact relationships between the employer and plan members, both active and retired, in all cases where plan amendments will be funded from surplus.

DECEMBER 13, 2006 – NEW GOVERNANCE STANDARDS

Effective on the assent of Bill 30, new governance standards came into force. These standards affect the pension committee’s responsibility and its relationships with delegates, representatives and service providers.

Responsibility of pension committee members

In order to properly understand the impact of the provisions of Bill 30 on the duties and responsibilities of the pension committee, it is useful to briefly review the current provisions of the Supplemental Pension Plans Act (SPPA).

The SPPA provides that a pension plan must be administered by a pension committee which acts as trustee. Moreover, the SPPA requires the pension committee to "exercise the prudence, diligence and skill that a reasonable person would exercise in similar circumstances". In addition, the pension committee must act "with honesty and loyalty in the best interest of the members or beneficiaries". Lastly, the SPPA specifies that the members of the pension committee must "use in the administration of the pension plan all relevant knowledge or skill that they possess or, by reason of their professional business, ought to possess".

Behind these obligations are the provisions of the Civil Code of Québec which apply to persons acting as trustees. In this respect, we note the trustee has "the control and the exclusive administration of the trust patrimony" and that any interested party may take action against the trustee to compel him to perform his obligations or to perform any act which is necessary in the interest of the trust, to enjoin him to abstain from any action harmful to the trust or to have him removed.

Certain recourses that have been commenced in Québec against pension committees or their members seem to have contributed to the growing concerns expressed by pension committee members in respect of their personal liability. The large number of plans with deficits has also fuelled these concerns.

Bill 30 proposes two measures to address this situation by establishing a particular liability regime for pension committees that rely on the advice of an expert and by permitting its members to be indemnified from the pension fund.

1. Expert advice

The pension committee will be presumed to have acted prudently if in good faith it relied on the advice of an expert. Similarly, the pension committee will not incur any liability concerning the compliance of an investment with the requirements of the law if it relied on the advice of an expert.

Bill 30 does not define the concept of expert. Generally, an "expert" is a specialist who is called upon to provide advice on a technical issue. Pension committees will therefore need to pay particular attention to the professional qualifications of persons retained as experts if they want to benefit from these provisions of Bill 30.

2. Indemnification of pension committee members

Pension committee members may in certain circumstances be indemnified from the pension fund.

Thus, the pension committee will be required to indemnify its members "who sustained a loss in the performance of their duties and who have committed no fault". Practically speaking, this particular regime will apply to pension committees whose members will not be covered by a fiduciary liability insurance policy. The application of this regime may be somewhat difficult, particularly regarding the determination of the absence of fault and of the loss sustained by the pension committee members which may put pension committee members in a conflict of interest situation.

If the members of the pension committee are covered by a fiduciary liability insurance policy and if they are found to have committed a fault (other than a deliberate or gross fault), the members may be indemnified up to the policy deductible. In such a case, the pension committee will be required to take into account the financial impact on the plan assets of such indemnification as well as any other relevant circumstance. We note that the indemnification regime does not seem to cover the situation where the fault leads to an award which exceeds the policy coverage.

It is therefore clear that all members of a pension committee should ensure they are adequately covered by a fiduciary liability insurance policy.

Delegates, representatives and service providers

The SPPA has always authorized the pension committee to delegate to a third party most of its duties and functions. When it acts in this manner, and provided it was authorized to delegate the powers in question, the pension committee will only be responsible for the care taken in the choice of the delegate and the manner with which it provided oversight of the delegate. It should also be noted that anybody acting in a delegated capacity assumes the same obligations and responsibility that the pension committee would have assumed if it had itself exercised the delegated powers.

Bill 30 introduces four important changes to the SPPA.

1. The choice of service providers

New Section 154.1 of the SPPA provides that the pension committee selects and hires the delegates, representatives and service providers.

Prior to the introduction of this provision by Bill 30, the SPPA did not specify that the pension committee had this particular power. It was widely assumed that the committee implicitly had this power as the entire administration of the plan was entrusted to it. The fact that the legislator has now seen fit to specify this particular power could affect the widespread practice of delegating in large measure the powers of the committee to the sponsoring employer, including the power to retain service providers. A number of pension committees may have to review delegations currently in effect. We note the requirement under the SPPA to review delegations when a new member of the committee with voting power takes office.

2. The exercise of a discretionary power by a service provider

Bill 30 considers that service providers who "exercise a discretionary power belonging to the pension committee" are delegates of the pension committee. As a result, the service provider will assume the same obligations and responsibility that the pension committee would have assumed if it had exercised the delegated powers. Bill 30 does not specify which powers of the committee will be considered to be "discretionary".

The application of this provision could potentially cover a number of situations. Consequently, service providers could find themselves with additional liability in connection with the services they have agreed to render.

3. Exclusion or limitation of responsibility

Bill 30 renders void any provision which limits or excludes the responsibility of a delegate, a representative or a service provider. This nullity is also extended to contracts that were in effect on December 13, 2006 or were terminated prior to that date if the provision is considered to be "abusive". In this respect, the abusive nature of the provision will be determined with reference to the provisions of the Civil Code of Québec on consumer contracts and contracts of adhesion.

The Civil Code of Québec provides that a clause of a consumer contract or a contract of adhesion is abusive if it is "excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith; in particular a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause".

Pension committees may want to examine service contracts currently in effect to determine whether they need to be revised, particularly if they contain provisions which limit or exclude the liability of the service provider.

4. Reports by service providers

Lastly, Bill 30 extends to all delegates, representatives and service providers the obligation of reporting to the pension committee any situation "that might adversely affect the financial interests of the pension fund and that requires correction". Prior to Bill 30, this requirement was only applicable to the accountant. The pension committee will be required to take immediate corrective measures failing which a copy of the report must be sent to the Régie des rentes du Québec by the delegate, representative or service provider, as the case may be. This "whistle blowing" obligation could be problematic for certain service providers whose code of conduct requires that information obtained in the course of their services be kept confidential.

DECEMBER 13, 2007 – ADOPTION OF AN INTERNAL BY-LAW

Pension committees have until December 13, 2007 to adopt an internal by-law covering ten topics. This requirement appears to be the Québec legislator’s response to the governance standards that had been proposed on a voluntary basis by the Canadian Association of Pension Supervisory Authorities (CAPSA) in 2004.

The prescribed content of the internal by-law may, in certain respects, create difficulties as it addresses issues which are quite complex. Thus, the internal by-law must identify the means by which the pension committee will "manage risks". Moreover, the pension committee must determine the rules applicable to the choice, remuneration, supervision and evaluation of delegates, representatives and service providers. The internal by-law will also need to take into account the plan’s investment policy as the latter will prevail should there be an inconsistency with the internal by-law.

No doubt many pension committees will find the establishment of the internal by-law to be a complex exercise. They would be well advised to seek the help of external resources that have the appropriate expertise and knowledge in the area of employer sponsored pension plans.

JANUARY 1, 2010 – FUNDING OF AMENDMENTS FROM SURPLUS

Beginning January 1, 2010, any amendment to a plan which is intended to be funded from surplus must be established "in a manner that is equitable for both the group of active members and the group of non active members and beneficiaries".

We note that the Québec Court of Appeal had ruled in March 2005 in the matter opposing Hydro-Québec and its retirees that the employer was not required in law to act equitably in respect of retirees when it negotiated benefit improvements with its unions. Such an obligation might possibly belong to the unions themselves. Moreover, no consent by the retirees was required to give effect to such amendments. By adopting Bill 30, the Government has chosen to set aside these conclusions. For more information on the Hydro-Québec case, see our Osler Update.

When this provision takes effect, the relationship of an employer with its unions will be impacted as Bill 30 provides no exception for amendments that affect members subject to a collective agreement. All such amendments will be required to be submitted directly to the plan members and beneficiaries in accordance with the following procedure.

Any amendment which is intended to be funded from the plan surplus is subject to the Bill 30 provisions. Thus, benefit improvements, contribution holidays for active plan members and the payment of administration expenses from the plan fund, to the extent an amendment to the plan is required to give them effect, will be subject to these provisions. The equity factors that will need to be taken into account will include:

  • the evolution of the plan;
  • amendments made to the plan and the circumstances in which those amendments were made;
  • the origin of such surplus and the use made in the past of any surplus assets;
  • the characteristics of the benefits provided for in the plan and those of pensions in pay.

The employer who wishes to proceed with any such amendment must inform the pension committee who in turn will be required to advise all plan members and beneficiaries. The latter will have 30 days to oppose the amendment. At the end of this delay, the pension committee will tally the votes. If 30% or more of active plan members oppose the amendment, it will be deemed not to be equitable in respect of such members. The same will apply to the group of inactive members and beneficiaries who oppose the amendment.

However, Bill 30 provides that the employer may have recourse to a mechanism to obtain a permanent confirmation of its right to fund amendments to the plan from surplus. This mechanism was introduced in the SPPA on January 1, 2001 and it allows the employer to obtain confirmation of its right to use surplus for contribution holidays.

Finally, we note the requirement to take into account equity in respect of amendments funded from surplus, will only apply to plans in effect on December 31, 2009 or which result from a division of such plans. Any plan established on or after January 1, 2010 must contain a provision allowing the employer to fund any amendment from surplus.

Employers will therefore have three years to prepare for the coming into force of this new measure. During this period, they will need to consider a number of options and weight these options in light of the particular circumstances of each plan.

JANUARY 1, 2010 – NEW MEASURES AFFECTING FUNDING AND SOLVENCY

The Québec Government is proposing three new measures with Bill 30 which are designed to reinforce the funding of defined benefit plans. These measures follow the adoption of temporary funding relief measures which took effect in June 2005 when Bill 102 was adopted. We note that regulations have been adopted in order to exempt the pension plans of universities, municipalities and day care centers from most of the funding measures described below.

Provision for adverse deviations in solvency

Beginning January 1, 2010, a reserve must be established gradually such that the assets of a plan will exceed its solvency liabilities. The amount of such reserve will vary according to the risk profile of the plan which will be determined in accordance with regulations to be adopted. Such regulations will take into account the plan’s investment policy.

This measure will impact the funding of amendments and the amount of surplus required for contribution holidays.

It will therefore be necessary to wait for the publication of the regulations in order to determine the full extent of this measure.

Letters of credit

Bill 30 maintains the use of a letter of credit by allowing the employer which has provided it to suspend all or part of the solvency deficit special payments. The amount of the letter of credit will be limited to 15% of the solvency liabilities of the plan. Employers who are party to a multi-employer plan will not be allowed to avail themselves of this measure.

Funding of amendments on a solvency basis

Amendments that reduce the solvency ratio of the plan to less than 90% will require a special payment payable immediately in order to restore the solvency ratio of the plan to at least 90%.

We note also that the funding of solvency deficits over a ten year period, as provided under Bill 102, will no longer be permitted beginning January 1, 2010. All solvency deficits will be funded over a five year period.

IMPACT ON MULTI-JURISDICTION PLANS

It is quite clear that Bill 30 will add to the existing numerous differences between the Québec standards and those of other jurisdictions.

The application of Bill 30 to plans covering members in more than one jurisdiction, including Québec, could be quite complex.

In this regard we note that for plans registered in other jurisdictions which cover Québec members, current regulations under the SPPA allow the application of the funding standards of the province of registration. However, notwithstanding this exemption, the requirement to act equitably for the purposes of funding plan amendments from surplus might remain applicable to the Québec members of such plans.

Michel Benoit is a partner and Co-Chair of Osler's National and Cross-Border Pension and Benefits Department practising out of the Montréal office. Josée Dumoulin is a partner in the firm's Pension & Benefits Department also practising out of our Montréal office.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions