Right to reduce pension benefits retroactively
On February 5, 2013, the Régie des rentes du Québec (the “Régie”) published Newsletter Number 29 regarding pension plan amendments that reduce benefits retroactively pursuant to the Quebec Supplemental Pension Plans Act (the “SPPA”).
The Régie probably thought it would be useful to publish clarifications on this subject following the Synertech decision of the Superior Court of Quebec in 2011. In that case, the Court had concluded that the Régie must not act arbitrarily, unfairly or unreasonably in exercising its power under the SPPA to refuse to register pension plan amendments that would reduce benefits, when the affected members have given their consent. In addition, the Court had stated that there was no official external policy or guideline from the Régie that would allow plan sponsors to be aware of the rules and to anticipate the Régie’s decision when an amendment is intended to reduce benefits. For further details on this decision, please refer to the April 2012 issue of News & Views.
Below is a summary of the Régie’s newsletter:
- The SPPA prohibits amendments to pension plans that would reduce accrued benefits, with some exceptions. The newsletter describes amendments reducing benefits that are subject to the SPPA.
- According to the newsletter, civil law (“jus commune” used in the newsletter) also forbids removing a vested right without the consent of that right’s beneficiary. A “vested right” is one that has been exercised by the person entitled to it. For example, an amendment that restricts the period during which members may request the transfer of their benefits cannot apply to a member who has already made a request to have benefits transferred when the amendment is made, without his or her consent. It should be noted that it may not necessarily be obvious if the “vested rights” were withdrawn without the consent of the person entitled to it.
- There are certain exceptions in the SPPA where an amendment reducing benefits can apply retroactively. These exceptions are:
- The amendment’s purpose is to bring the plan into conformity with tax rules;
- The amendment’s purpose is to withdraw an employer that has declared bankruptcy;
- The affected members and beneficiaries have consented to the amendment and the Régie has authorized the amendment. It should be noted, however, that it is never possible to amend a plan to reduce the amount or the value of a pension that is already in payment.
- Notion of members’ and beneficiaries’ consent for the purposes of the 3rd exception above: the affected members and beneficiaries must give their individual and explicit consent, including those who could be affected by the amendment reducing benefits, even if the effects are not immediate. Individual consent is required even if the amendments were negotiated as part of a collective agreement. In addition, a member or beneficiary who has not expressed his or her views cannot be considered to have given consent. It is possible to provide that an amendment reducing benefits may apply retroactively only to those who have given their consent.
- Conditions for the amendment to be authorized by the Régie for the purposes of the 3rd exception above: confirmation that the affected members and beneficiaries received adequate and sufficient information to give informed consent. The document sent to the members and beneficiaries for the purpose of obtaining their consent must contain the required information; in particular, it must explain the situation, list both the benefits that will apply after the amendment takes effect and those currently in effect, indicate the date on which the amendment is expected to take effect, provide sufficient information for the members and beneficiaries to understand the extent to which it affects them individually (this may involve personalizing the document if the amendment does not affect all members and beneficiaries in the same way).
- Procedure: a copy of the documents sent to the affected members and beneficiaries to obtain their consent must be sent to the Régie, at the latest with the application for registration of the amendment, but it is not required to send a copy of each consent received. The Régie may request a copy of the consents thereafter and may proceed to verifications with the members and the beneficiaries. The newsletter strongly recommends that the consent document be submitted to the Régie along with a draft amendment before taking any steps with the affected members and beneficiaries, in order to be sure that the document meets the Régie’s requirements, or whether additions or changes need to be made.
- Contributions payable to the pension plan: only contributions that become due after the actuarial valuation report has been submitted can be reduced to take into account an amendment that reduces benefits retroactively and that was authorized and registered by the Régie. That is to say, any outstanding contributions that had not been paid into the pension fund before the report was submitted must be paid in full with interest.
Now that the Régie has published its requirements regarding amendments reducing benefits retroactively, plan sponsors who want to introduce such amendments should be able to determine more easily the probability of these amendments being accepted by the Régie, provided the requirements of the Newsletter Number 29 are complied with. It will be interesting to see how the publication of these requirements will impact the way in which the Régie exercises its discretionary power to authorize or refuse such amendments.