Highlights of amendments to Bill 3 concerning municipal pension plans in Quebec
At a news conference on October 2, 2014, Pierre Moreau, Minister of Municipal Affairs and Land Occupancy, outlined the proposed amendments to Bill 3, An Act to foster the financial health and sustainability of municipal defined benefit pension plans.
This bill applies to all municipal pension plans in Quebec. For a recap of the highlights of the Bill as presented on June 12, 2014, see our June 2014 News & Views.
Minister Moreau announced the following amendments (for details, see our Special Communiqué of October 8, 2014).
1. Date of Bill application delayed for some plans
It will be possible to postpone the process of negotiation and delay its effective date until the end of the collective agreement for plans that meet at least one of the following conditions, on the basis of a required actuarial valuation as at December 31, 2013 (filed no later than December 31, 2014):
- The plan is 100% funded.
- The plan is funded at a level of 80% or more and an agreement is in effect that satisfies at least one of the following objectives of the Bill:
- equal sharing of the current service contribution;
- equal sharing of the deficit for future service;
- equal sharing of the deficit for past service;
- limiting the current service cost to 18% (or 20% for police and firefighters);
- establishing a contributory stabilization fund.
2. Retirees and beneficiaries: delay in possible suspension of automatic pension indexing
An actuarial valuation must be performed as at December 31, 2015. If the pension plan is funded at a level of 100% or more as at December 31, 2015, automatic indexing of retirees' pensions will continue. If not, automatic pension indexing can be suspended as of January 1, 2017. However, the suspension of indexing cannot reduce the deficit attributable to retirees by more than 50%; the balance of the deficit must be assumed by the employer. Any suspended indexing will need to be restored first when the plan has a sufficient surplus.
3. Stabilization contribution in addition to the limit on current service cost
The cost of benefits will be limited to 18% (or 20%), to which the stabilization contribution of at least 10% of the benefit cost (without margins) will be added.
4. Adjustment to the limit on the current service cost for some employees
The Minister will allow greater flexibility in the application of the limit on the current service cost for some municipal employees. Thus, if the average age of active members is more than 45 years, the current service cost limit can be increased by 0.6% of payroll for each full year the average age exceeds 45 years. Also, a maximum adjustment of 0.5% will be allowed for plans with a majority of female members.
Lastly, the limit on current service cost could be adjusted if the federal government changes its 18% tax limit for a defined contribution plan.
5. Progressive application of the limit on the current service cost
For plans that reduce their costs by 4% or more, half of this reduction may be applied at the restructuring date, and the rest at the next full actuarial valuation. For example, if the current service contribution is 24% and must be limited to 18%, the cost could be reduced to 21% (or less) at January 1, 2014 and to 18% at the next valuation.
6. Allocation of surplus assets
The proposed amendments restrict the allocation of any future surplus assets by stipulating that they must first be used to restore indexing. Secondly, the concept of repayment of debts contracted by the plan towards the municipal body and members is introduced (details still to be clarified).
As noted in June 2014, this Bill has major implications for most municipal pension plans. However, the impact may vary greatly from plan to plan depending on funded status, provisions and collective agreements in force.