Right to reduce pension benefits retroactively
Pension plan sponsors often question if they have the right to reduce pension benefits retroactively. In Synertech Moulded Products, Division of Old Castle Building vs. Tribunal administratif du Québec, the Quebec Superior Court considered the issue of amendments that reduce pension benefits retroactively. On September 9, 2011, the court ruled that the Régie des rentes du Québec (the "Régie") cannot arbitrarily refuse to register pension amendments to which the affected members had given their consent.
The decision is based on the provisions of the Quebec Supplemental Pension Plans Act (the "SPPA") which state, in particular, that no amendment to a pension plan which cancels refunds or pension benefits, limits eligibility therefor or reduces the amount or value of the benefits of members or beneficiaries may take effect, unless the affected members or beneficiaries have agreed to the amendment, provided the Régie has authorized the amendment.
It should be noted that pension legislation in the other provinces limits or prohibits the right to reduce pension benefits retroactively. Applicable legislation should be referred to in order to determine the relevant specific requirements.
Summary of the facts
In 2001, Synertech sets up two individual defined benefit plans for two key employees, with the same pension formula. Following the 2008 financial crisis, each one of the two members affected by these plans agreed in writing to an amendment that would reduce the pension formula with respect to all the service credited under the plan, effective retroactively to January 1, 2001. The pension plans were also terminated as at December 31, 2008.
In 2009, the Régie refused to register the amendments to the above-described plans because the amendments reduced significantly and retroactively the value of the members’ benefits. The Régie’s decisions were then contested before the Tribunal administratif du Québec (the "Tribunal"), which upheld the Régie’s decisions in 2010. In 2011, Synertech appealed the Tribunal’s decisions to the Quebec Superior Court.
Main reasons of the decision
The court overruled the Tribunal’s decisions for the following reasons:
- When exercising its discretionary power, the Régie must not act arbitrarily, unfairly or unreasonably in authorizing or refusing amendments.
- In the absence of criteria in the legislation, the Régie’s decisions must be based on the provisions as set out in the SPPA. It should be noted that the Régie’s non-official internal position was not to authorize retroactive amendments that reduced the value of members’ benefits by more than 5%.
The SPPA should be amended to provide further clarification. It remains to be seen if the Régie will publish guidelines regarding amendments reducing benefits. If no measure is taken to further clarify the SPPA or to disclose the Régie’s official position, it appears that it could be more difficult for the Régie to exercise its discretionary power in the future.