Draft Regulation to amend the Regulation respecting the exemption of certain categories of pension plans from the application of provisions of the Supplemental Pension Plans Act

On March 6, 2024, a regulation amending the Regulation respecting the exemption of certain categories of pension plans from the application of provisions of the Supplemental Pension Plans Act (« exemption regulation ») was published in the Gazette Officielle du Québec. This draft regulation mainly aims to harmonize rules applicable to certain types of plans, such as Member-funded pension plans (« MFPPs »), to the application of the Supplemental Pension Plans Act (« SPP Act ») provisions and the regulation respecting Supplemental Pension Plans (« SPP regulation »). Comments on the draft regulations must be sent in writing before April 20, 2024.

Member-funded pension plans

MFPPs form a category of plans in which the employer’s contributions are fixed, and the plan’s obligation is therefore the active members responsibility. To manage the risks that plan members bear, MFPPs are funded by assuming indexation of benefits before and during retirement, however, this indexation is only granted if the financial position of the plan permits. There is a plan deficit when the plan is no longer funded, without considering pension indexation assumptions.

MFPPs have existed in the Quebec legislative framework since 2008, when this category of plans was added through an amendment to the exemption regulation. Since that time, and despite a modification in 2017, MFPPs were exempt from multiple modifications made to the SPP Act.

This new draft regulation aims to modernize the rules specific to MFPPs and harmonize them with the rules that apply to other categories of retirement plans. Among the many changes that will now apply to MFPPs, below are some of the most notable.

Maintaining benefits in the plan for members affected by an employer withdrawal 

The draft regulation introduces the possibility for a MFPP to allow the plan to maintain retired members benefits or members eligible to a pension that are affected by an employer withdrawal who otherwise should, in the case of a retired member, have been paid by purchasing an annuity from an insurer.

For the affected members, this change will allow them to opt for their pension to continue to be paid by the plan, entitling them, at the same time, to future granted indexation.

To provide for this possibility, the plan must address it in its Plan Text and indicate in its funding policy the level of the plan’s going concern ratio to which maintaining the benefits will no longer be possible. In addition to this threshold, the funding policy may also consider criteria such as the financial position of the plan, the proportion of liabilities represented by such members and the plan’s maturity.

Allocation of surplus assets

The provisions relating to the allocation of surplus assets during the plan’s existence must be integrated into the Plan Text. Member consultation is required to include these provisions as well as in the event they are modified.

On the other hand, a MFPP which allocates surplus assets will no longer have to obtain the consent of accredited associations participating in the plan if the allocation complies with the provisions set out in the Plan Text.

Consent to modifications

The rules concerning the consents to be obtained in the event of a modification to the Plan Text will be amended to provide that only members whose obligations are increased must consent to the modification. In the case of members represented by an accredited association, the consent of the association is equivalent to the consent of the workers it represents.

Funding and reporting requirements

The deficit amortization period of 15 years for a MFPP is reduced to 10 years. However, it is important to remember that a deficit contribution is required in cases where the plan is not funded without considering the provision for the indexation of pensions.

In years for which no actuarial valuation report is produced and filed with Retraite Québec, a MFPP must have an actuary prepare a certificate of opinion serving to inform Retraite Québec of the financial position of the plan on a solvency basis. This notice must be filed within nine months of the end of the financial year to which the notice relates.

The draft regulation also provides that all MFPPs must be subject to an actuarial valuation as of December 31, 2024.

Employer withdrawal

The rules to apply in the event of an employer withdrawing from a multi-employer MFPP have been modified so that the process is more appropriate for this type of plan. This results in a simplified process that will make it easier for affected plans to deal with this type of situation.

Other modifications

Some other changes will also affect the administration of these plans. In particular, the solvency ratio used on a disbursement will be the most recent one when the benefit was calculated rather than the ratio when the disbursement was requested.

Flexible pension plans

A flexible pension plan is a defined benefit pension plan that allows members to make optional ancillary contributions, without compensation from the employer, to obtain optional ancillary benefits such as indexation after retirement or an early retirement without reduction.

To encourage the implementation of flexible pension plans, regulatory changes were introduced in 1999 to exempt these plans from certain provisions of the SPP Act. However, existing plans were not required to comply with this regulation. There are therefore currently two types of flexible pension plans, namely exempted plans which comply with the exemption regulations and therefore consider optional ancillary contributions as voluntary contributions and non-exempted plans which consider optional ancillary contributions as employee contributions.

This new draft regulation aims to harmonize the rules specific to flexible pension plans with the tax rules and the provisions currently in place of the SPP Act and the SPP regulation. Any flexible pension plan must comply with the new provisions of the exemption regulation as soon as it comes into force but will have one year to register the modifications with Retraite Québec. The main changes that will now apply to flexible pension plans are as follows:

Maintaining a single type of flexible pension plan

Any flexible pension plan will now be subject to the provisions of the exception regulation. It will therefore no longer be possible for a flexible pension plan to be non-exempt.

Reimbursement of unconverted contributions

A flexible pension plan must now allow reimbursement from the pension fund of optional ancillary contributions which have not been converted into optional ancillary benefits. This will prevent the member from losing unconverted paid contributions and the employer will no longer be required to settle unconverted contributions outside the plan.

Exemption from financial report audit

The regulations currently provide that a plan may be exempt from a financial report audit when the market value of the net assets of the plan is less than $1,000,000 and the plan has fewer than 50 members and beneficiaries. The draft regulation provides that it will now be possible to be exempt when the market value of the net assets of the plan is less than $5,000,000, regardless of the number of members and beneficiaries of the plan.

Other provisions

Simplified pension plans

Simplified pension plans will no longer have to transmit, as an appendix to the annual information return, a list indicating the name and date of membership or withdrawal, as the case may be, of each employer who has begun or has ceased to participate in the plan during the financial year covered by the return.

Pension committee

The employer will now be able to act as administrator, if the plan so provides, when the plan has fewer than 51 members and beneficiaries. The threshold to be exempt from forming a pension committee is currently 26 members and beneficiaries.