On October 7, 2020, Bill 68, An Act mainly to allow the establishment of target benefit pension plans (Bill 68), was tabled at Quebec’s National Assembly by the province’s Minister of Finance, Éric Girard.
Bill 68’s main purpose is to provide a supplementary retirement savings option for Quebec workers by paving the way for the implementation of a new type of pension plan, namely a Target Benefit Pension Plan (TBPP).
TBPPs combine characteristics of defined benefit plans with those of defined contribution plans. As is the case for defined contribution plans, the employer contribution to a TBPP is limited to the amount stipulated in the plan, while risks associated with longevity and return on savings are borne by workers and retirees. However, like defined benefit pension plans, TBPPs offer their members benefits at a certain level that, as opposed to the prevailing situation for defined benefit plans, may be amended according to the plan’s evolving financial situation, including the possibility of pensions being reduced.
Under Bill 68, a TBPP must have the following characteristics:
- The obligations of the plan are to be borne by the plan’s members and beneficiaries
- The employer contribution is to be limited to that stipulated in the plan
- The plan must determine the benefit target to be used as a basis for determining the current service contribution
- The normal pension, as well as any benefit provided for in the plan, may be reduced due to insufficient contributions
- With some exceptions, only the members and beneficiaries are entitled to the surplus assets
- The plan may not be amended or terminated, directly or indirectly, unilaterally by an employer that is a party to the plan
Bill 68 also provides that certain provisions are prohibited in TBPPs. For example, a TBPP may not include provisions:
- Establishing that the remuneration used to calculate a member’s pension corresponds to the average salary of that member’s last remunerated years or to the average of the member’s best remunerated years over a specified number of years
- Providing for the periodic increase of a member’s pension after retirement, according to an index or rate specified in the plan
- Granting benefits subject to the termination of the plan
- Granting early retirement benefits that depend on a member’s number of years of employment or of credited service
With regard to funding rules applicable to TBPPs, Bill 68 provides that the current service contribution must be established according to the benefit target.
Moreover, a TBPP’s liabilities must be equal to the value of the obligations arising from the plan taking into account the service credited to its members, which are established taking into account any benefit adjustments made in relation to the target that result from recovery measures, the restoration of benefits or the appropriation of surplus assets.
An actuarial valuation must be carried out at the date of the end of the TBPP’s fiscal year, which must correspond to the calendar year. However, an exception is made for the first fiscal year, subject to authorization by Retraite Québec. An actuarial valuation report must be sent to Retraite Québec within the six-month period following the valuation date.
RECOVERY MEASURES AND PROCEDURE FOR RESTORING BENEFITS
Under Bill 68, a TBPP’s text must include recovery measures applicable in the event of insufficient contributions, as well as a procedure for restoring benefits.
Recovery measures must not confer on the pension committee any discretion with respect to (i) the election of applicable measures; (ii) the order in which such measures are to be applied; and (iii) how such measures are to be distributed among members (both active and non-active) and beneficiaries. The same principle applies to the conditions and procedure for restoring benefits.
Furthermore, separate recovery measures must be established for an insufficiency relating to service after the actuarial valuation date and an insufficiency relating to service credited at that date.
A TBPP may include any one of the following recovery measures or a combination thereof: (i) an increase in member contributions; (ii) an increase in the employer contribution (subject to limits set by the plan); (iii) a reduction in the benefits if the insufficiency of contributions relates to service credited at the valuation date; or (iv) a reduction in the benefit target if the insufficiency relates to service after the valuation date.
Moreover, a recovery measure may not become effective before the day following the date of the actuarial valuation regarding which the report showed insufficient contributions, but must become effective no later than one year after that day. This also applies to the conditions and procedure for restoring benefits.
In addition, if a recovery measure may reduce a pension benefit the payment of which began prior to the measure’s effective date, it may not have an effect on amounts or benefits already paid.
It should be noted that amendments to a TBPP’s recovery measures, or to a TBPP’s conditions or procedure for restoring benefits, are strictly regulated and may, notably, only be carried out if less than 30 per cent of the TBPP’s members and beneficiaries are opposed to them.
OTHER RULES SET OUT BY BILL 68
Bill 68 also sets out rules applicable to the conversion of certain multi-employer pension plans into TBPPs, as well as special provisions for certain existing TBPPs in specific sectors (such as the pulp and paper sector). These rules are not covered in this bulletin.
For more information, please contact a member of our Pensions, Benefits & Executive Compensation group.
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