Quebec issues draft regulation affecting the stabilization provision
On July 3, 2019, a draft regulation amending the Regulation respecting supplemental pension plans was published in the Gazette officielle du Québec. The regulation would affect the determination of stabilization contributions and increase annual information return filing fees, among other changes.
The draft regulation revises the scale used to determine the target level of the stabilization provision that must be established by the payment of stabilization contributions. To determine the target level of the stabilization provision, the draft regulation allows for non-rated private debts to be taken into account as fixed-income investments if certain conditions are met.
Generally, the revised chart will increase the stabilization provision for defined benefit plans with a significant proportion of assets allocated to variable-income securities and decrease the stabilization provision for those with less exposure to variable-income securities. In addition, plans that use bond overlay strategies would see a more significant increase in their stabilization provision.
The draft regulation increases and adjusts annually the upper limit of fees required when filing the annual information return so that it better reflects the expenses incurred by Retraite Québec for the administration of the Supplemental Pension Plans Act, and the upper limits of certain fees required, as when filing an application for the registration of a plan termination report, among others.
Finally, the draft regulation proposes various forms of relief regarding in particular the content of partial valuations in relation to plan amendments and the additional fees payable for a delay to file a document, and some technical or consequential amendments to correct some outdated provisions, to use more adequate terminology and to ensure better consistency between the French and English versions of the legislation.
Two of the measures proposed by the draft regulation would have financial consequences on pension plan sponsors. Those measures are the increase of the upper limit of fees payable and their adjustment thereafter, which will have an impact on plans with a significant number of members, and the proposed scale to determine the target level of a stabilization provision, which could entail an increase or a decrease in contributions depending on the degree of risk in the plan’s investment policy. The proposed measures regarding the content of partial valuations of amendments and the additional fees payable for a delay in filing a document relax certain administrative rules for enterprises.
The regulation will come into force on the 15th day following the date of its publication in the Gazette officielle du Québec, except for certain provisions that will come into force on December 31, 2019, namely the revised scale used to determine the target level of the stabilization provision, and January 1, 2020, namely the adjustment of the upper limit of fees.
Plan sponsors should review the impact of the proposed changes to the stabilization provision on their plan contributions and consider whether there is a need to revisit their investment and funding policies.