Québec: Regulation on funding policies and annuity purchases
The final version of the Regulation to amend the Regulation respecting supplemental pension plans (the “regulation”) was published on December 20, 2017 in the Gazette officielle du Québec. The regulation came into force on January 4, 2018.
This regulation, which addresses funding policies and annuity purchasing policies, makes only a few changes to the draft regulation published on July 12, 2017. For details about the draft regulation, see our News & Views of August 2017.
The following summarizes the main changes to the initial draft regulation:
1. Funding policy
Each plan must adopt a funding policy by January 4, 2019. Note that the Supplemental Pension Plans Act provides that the funding policy must be adopted by the person or body who may amend the plan.
With respect to the subjects that must be addressed in the funding policy, it is no longer necessary to mention the market trends observed in the employer’s sector. The policy must outline the principles related to plan funding, the main characteristics of the employer and the employer’s sector, the type of pension plan, its main provisions and demographic characteristics, the funding objectives of the plan with regards to variations in and the level of contributions, the main funding risks and the employer’s and active members’ level of risk tolerance. The regulation also provides for optional content.
2. Annuity purchasing policy
The regulation contains information regarding the annuity purchase policy and its content. Since it is not required that an annuity purchase policy be established, the regulation does not set a deadline for adopting such a policy. However, the policy must be adopted before an annuity may be purchased.
The regulation now indicates that it is possible to not proceed with an annuity purchase (if, for example, the premium required by the insurer is not considered very attractive) in circumstances when the pension to which the member or beneficiary is entitled is unavailable on the market due to its nature and it is proposed to be replaced by an annuity with similar characteristics. In such a case, the member or beneficiary must consent in writing to the replacement of the characteristics of his or her pension. The notice provided to the member or beneficiary for the purposes of consent must indicate that the purchase of annuities is contingent on the premium required by the insurer and that a notice will be provided to each member or beneficiary who has consented to the replacement once his or her annuity has been purchased, or once it is decided to not proceed with the payment of benefits by means of an annuity purchase.
3. Subjects on the agenda of the annual meeting
Information about annuity purchases must only be provided if annuity purchases were actually made in accordance with the annuity purchase policy since the previous annual meeting. The required information includes the number of annuities purchased and the premium required by the insurer for each annuity purchased and, if applicable, the amount of the employer’s special annuity purchasing payment.
4. Partition of benefits after divorce and seizure
Details were provided in this regard and will apply to partitions and seizures with a date of execution subsequent to March 31, 2018.
The regulation provides a number of details that were expected. However, further details will be required for pension plans in the municipal and university sectors. For example, the regulation no longer contains provisions regarding the provision for adverse deviation (PfAD) as of January 4, 2018. However, the PfAD is still required to determine the surplus assets available for municipal and university sector pension plans.
Although a reasonable time period has been set for adoption of a funding policy, careful consideration of policy content and plan risk management should begin without delay. Existing documents, such as the investment policy and internal by-laws, should be reviewed to ensure consistency. Note that it is the responsibility of the pension committee to adopt the investment policy and internal by-laws. Furthermore, the pension committee must receive a copy of the funding policy.