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Quebec: Bill 75 will impact university DB plans and all DC plans

On November 11, 2015, the Quebec government introduced Bill 75, "An Act respecting the restructuring of university sector defined benefit pension plans and amending various legislative provisions".

With Bill 75, all university-sector DB plans must be restructured by December 31, 2017 in accordance with the provisions of the Act, based on a complete actuarial valuation as at December 31, 2014, to be submitted no later than December 31, 2015.

Bill 75 also introduces the possibility that all DC plans (not only university-sector plans) could pay variable benefits to a retired member.

General restructuring measures

All university-sector DB plans must meet the following requirements for service from January 1, 2015.

  • Stabilization fund: Establish a stabilization fund that is funded by actuarial gains and a stabilization contribution equal to 10% of the current service contribution (determined without taking into account any margin for adverse deviation), by January 1, 2018.
  • Cost sharing: Share equally between the employer and the active plan members all plan costs (current service contribution, amortization payment and stabilization contribution) by no later than January 1, 2018, unless the parties agree on a sharing arrangement in which active plan members pay no less than 45% of plan costs. If the current employee share is 35% or less, the Bill provides for a transition period to January 1, 2021.

Special restructuring measures

In addition to the general measures noted above, a university-sector DB plan must restructure benefits if the sum of the current service contribution and amortization payment, as determined in the actuarial valuation as at December 31, 2014, exceeds 21% of the payroll for active members. If this is not the case, the restructuring is left to the discretion of the parties.

The 21% maximum can be increased depending on the average age of active plan members, or if a majority of plan members are women.

The restructuring is to be implemented in the following manner:

  • For service prior to January 1, 2015:
    • A reduction in the automatic indexation of pensions for active members and for retirees.
    • A reduction in the ancillary benefits (the accrual rate for the normal pension cannot be reduced for service prior to January 1, 2015).
  • For service from January 1, 2015:
    • A reduction in the current service contribution; this reduction is not subject to any restrictions.

Compared to the requirements of An Act to foster the financial health and sustainability of municipal defined benefit pension plans, the parties may, if they wish, keep the automatic indexation provisions already set out in the plan.

The participation of the retired members group in the benefit restructuring effort is limited to the value of the automatic indexation of their pensions and cannot, under any circumstances, exceed 50% of the portion of the plan deficit attributable to this group. The participation of the active members group in the benefit restructuring effort is limited to 50% of the remaining plan deficit.

If the restructuring for service prior to January 1, 2015 does not reduce the total plan cost to 21%, the current service contribution must be reduced by an amount sufficient to reach the 21% maximum.

The portion of the plan deficit to be funded by the employer must be amortized over a maximum period of 15 years and cannot be consolidated in subsequent actuarial valuations. Furthermore, surplus assets may no longer be allocated to the payment of employer contributions, unless required by tax rules (i.e. if the plan is more than 125% funded).

The parties must reach an agreement within 12 months of undertaking their negotiations, which must start no later than February 1, 2016. However, the negotiating period may be extended twice, for three months each time. Upon expiry of the negotiating period, an arbitrator will be appointed and must issue a decision by December 31, 2017 on the amendments to be made to the plan.

For more details, see our Special Communiqué.