Quebec: Details on QPP expansion and other rules for supplemental plans
On November 2, 2017, Quebec’s Minister of Finance tabled Bill 149, “An Act to enhance the Quebec Pension Plan and to amend various retirement-related legislative provisions.”
This bill amends the Act respecting the Quebec Pension Plan mainly to enhance the Quebec Pension Plan by creating an additional component.
The bill also amends the Supplemental Pension Plans Act (“SPP Act”) to revise certain rules covering the use of surplus assets from private-sector defined benefit plans, notably changing the “banker’s clause” calculation to include amounts paid by an employer to reduce a letter of credit or as special contributions for annuity purchases. Finally, the bill includes some administrative streamlining.
Quebec Pension Plan (QPP)
The bill creates an additional component of the QPP that is practically identical to the one that the Canada Pension Plan (CPP) adopted last year for the other provinces (see our News and Views of July 2016), although the government had looked at the possibility of taking a different approach (see our News and Views of December 2016). Keep in mind that the QPP applies to all Quebec workers employed by businesses located in Quebec, even if the business is under federal jurisdiction.
Contributions and pension benefits
The additional component under the QPP provides for contributions and pension benefits that are exactly the same as for the CPP, i.e.:
- 2% (1% employee/1% employer) between $3,500 and the maximum pensionable earnings (“MPE,” which will be $55,900 in 2018), introduced progressively from 2019 to 2023;
- 8% (4% employee/4% employer) between the MPE and the additional maximum pensionable earnings (“AMPE”), which will equal 107% of MPE in 2024 and 114% of MPE as of 2025.
- Pension benefits – for participation as of January 1, 2019, only
- 8.33% of MPE, introduced progressively from 2019 to 2023;
- 33.33% between the MPE and the AMPE, as of 2024.
The maximum contribution increases by about 30% as of 2025.
The maximum pension benefit increases by about 50% after a contribution period of 40 years.
Note that the surviving spouse’s pension payable under the QPP’s additional component is different from the base component. For a spouse aged 65 or older, it is 50% instead of 60%, while for a spouse who is younger than 65, it is 50% instead of 37.5% plus a flat benefit. These differences do not exist in the CPP.
The contributions and benefits under the plan as it now exists (“base component”) will be accounted for separately from those to be added as of January 1, 2019 (“additional component”).
The additional component will be fully funded (the base component is partially funded) and each component will have its own investment policy.
Stabilization measures have been introduced, notably:
- Base component: obligation to fund improvements by increasing contributions (like the CPP)
- Additional component: adjustment of contributions and/or benefits in the event of underfunding or overfunding (like a target benefit plan and like the CPP)
Here is a brief list of the main amendments proposed for the SPP Act (respecting private sector plans, although the last two administrative matters on the list below also apply to plans in the municipal and university sectors).
- The conditions with respect to the banker’s clause are revised to include contributions paid by an employer to reduce a letter of credit (effective January 1st, 2016) or to purchase an insured annuity.
- Specifications are made concerning the use of the surplus assets during the life of the plan and concerning the application of the provisions in force as at December 31, 2015, for appropriating and allocating surplus assets.
- The requirements for financial reporting are revised and the report need not include a statement of the obligations relating to benefits.
- The notice of the annual meeting must be sent within 9 months (instead of 6 months) after the end of the fiscal year.
- The notice regarding the solvency financial position must be submitted within 9 months (instead of 4 months) after the end of the fiscal year and will no longer be required when a complete actuarial valuation at the same date is sent to Retraite Québec.
- The transfer value paid in proportion to the plan’s solvency ratio reflects the solvency ratio applicable on the calculation date (instead of the settlement date).
Even though Quebec’s demographics mean that the QPP contribution rate for the base component is now higher for the CPP, the initial contribution rate for the additional component is the same for the QPP and the CPP. Unless there are future demographic changes or better returns on investments, the QPP thus runs a higher risk of having to increase contributions and/or decrease benefits.
Now that it is clear how public plan contributions are going to increase in just over 12 months, this change provides a good opportunity to consider the impact of this expansion and whether to review supplemental pension plans.
Note that the QPP consultation held last winter also included proposals to change existing benefits under the base component (“Axis 2”), but the present bill does not mention this.