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Adoption of Bill 3 regarding Quebec’s municipal pension plans, with new amendments

After an extensive review by a parliamentary committee, Bill 3 was finally adopted by the Quebec National Assembly on December 4, 2014. The committee made a number of changes to the revised bill tabled in October 2014.

We outline the main amendments below. To review the highlights of Bill 3 as presented on June 12 and amended on October 2, see our June 2014 and October 2014 News & Views. The main amendments in the final version are as follows:

1. Current service cost

  • With respect to determining the maximum cost of benefits, an additional increase has been added to those already announced, which are based on the average age and the percentage of female employees in the plan. If, at December 31, 2013, the plan is more than 100% funded, the maximum cost of 18% (20% for police and firefighters) of payroll will be increased by 0.25% for each full percentage point above the 100% ratio. • If active plan members were contributing 35% or less of the plan cost on December 31, 2013, half of the increase required to raise that contribution to 50% must start no later than January 1, 2017, and active plan members must be contributing the full 50% by January 1, 2020.
  • After restructuring, a municipal body may not replace its current service contribution until its share of the deficiency is fully funded.

2. Calculating the deficiency

  • With respect to calculating the portions of the deficiency attributable to active members and to the municipal body, the plan deficiency is reduced by the amount accumulated in the reserve.
  • The municipal body may come to an agreement with active members to increase its portion of the deficit up to 55%. If no such agreement is made, the deficiency is split 50/50. Furthermore, the portion of the deficiency attributable to active members may now be funded not only by reducing benefits, but also by increasing their contribution by as much as 3% of payroll for a maximum period of 5 years.
  • If the plan covered several categories of employees and already used separate accounting, the deficiency may be divided among the different categories in accordance with that separate accounting if a majority of employee categories request it.
  • The portion of the deficiency to be shared with retirees is based on the plan’s financial position as at December 31, 2015, or as at December 31, 2013 if the deficiency as at that date was lower. For any actuarial valuation after that of December 31, 2015, surpluses must be used for pension indexing.

3. Additional obligations resulting from amendments

  • The condition that no additional obligation could be created before restoration of the indexation for pre‑2014 service has been eliminated. However, surplus assets may not be used to fund an improvement until the indexing for retirees has been restored for the period elapsed since the last valuation and the period remaining until the next actuarial valuation, and until provision has been made for future indexing for retirees.

4. Possible postponement

  • For plans that have achieved a funding level of 80%, the conditions with respect to postponing implementation of the maximum plan cost have been reformulated. If the actuarial valuation as at December 31, 2013 shows that the current service contribution is less than 18% (20% for police and firefighters), with the percentage being increased based on the average age, funding level and percentage of female employees, the plan is eligible to postpone the implementation.

What must be done in the short term

  • For all plans, an actuarial valuation as at December 31, 2013 must still be filed no later than December 31, 2014.
  • The municipal council must hold a sitting no later than January 19, 2015. A public notice must be issued 14 days before the date of the sitting, i.e., no later than January 5, 2015.
  • For plans that are not eligible for postponement, negotiations must start no later than February 1, 2015.


Our analysis of these amendments shows that they bring a certain flexibility to the bill as adopted, but also greater complexity. It will thus be important to monitor future developments in order to measure the precise impact of all these measures on pension plans in Quebec’s municipal sector.