Termination of a pension plan

As the employer, you will find in this section some basic information that you will need to terminate your pension plan in accordance with the Supplemental Pension Plans Act and the rights of the members and beneficiaries.

• The right to terminate a pension plan
• Situations in which the employer cannot terminate a plan
• Multi-employer plans
• Obligations of the employer
• In the event of a plan deficit
• In the event of surplus assets

The right to terminate a pension plan

The Supplemental Pension Plans Act gives the employer and, in certain circumstances, the Régie des rentes du Québec the power to terminate a pension plan.

Situations in which the employer cannot terminate a plan

• The existence of an agreement
  The employer cannot terminate a pension plan if prevented by any type of agreement, for example, a collective agreement that provides for continuation of the plan while the agreement is in effect.
• The plan has been made compulsory by an order or decree
  If the pension plan has been made compulsory by an order or decree, the employer cannot terminate it unless the provisions of the plan provide otherwise.

Multi-employer plans

If the plan has more than one employer, the decision to terminate the plan must be made jointly by all the employers.

If one employer withdraws from the plan

If the plan has more than one employer and only one of them withdraws from the plan, the plan is not terminated but there is simply the withdrawal of an employer.

Obligations of the employer

If the employer decides to terminate a plan, he must:

• set the plan's termination date
• send a written notice of termination to:
  • the members and beneficiaries affected by the termination (The notice must be sent even to those who are covered by a collective agreement.)
  • the union (if any)
  • the plan administrator
  • the insurer, if any
• pay the required contributions up to the plan's termination date
• pay the outstanding debt if the plan has a deficit
• deal with the allocation of surplus assets if the termination report shows a surplus.

In the event the Régie decides to terminate a plan

The Régie is required to inform the employer if the Régie decides to terminate a plan.

In the event of a plan deficit

• If the plan's assets are insufficient to pay the benefits of all the members and beneficiaries, the employer will have to pay the debt, with interest.
• If the employer is unable to pay the debt because, for example, of a bankruptcy, the plan administrator will be required to reduce the members' and beneficiaries' benefits.

In the event of surplus assets

If the termination report shows surplus assets, they can be allocated to:

• the members and beneficiaries only
• the employer only
• both the members and beneficiaries and the employer

The employer has 150 days to reach an agreement on the manner in which the surplus will be allocated and to take the necessary measures to carry out the allocation

The 150-day period begins on the date on which the plan administrator receives the written notice of termination sent by
the employer or the decision of the Régie to terminate the plan.

Means at the employer's disposal for dealing with the allocation of surplus assets

• A decision to allocate all the surplus assets to the members and beneficiaries pro rata to the value of their benefits.
• A draft agreement submitted to the members and beneficiaries.
• An agreement with the union in the case of a plan established under a collective agreement.
  • Such an agreement covers only the plan members who are members of the union concerned. A draft agreement must be submitted to the other members and beneficiaries.
• Arbitration, if the employer, the members and the beneficiaries affected by the termination have agreed to it.
• Where the plan was established under a collective agreement, the consent of the union replaces the consent of the members that it represents.

If the employer does not act before expiry of the 150-day period:

• Where the plan was not established under a collective agreement, the employer is deemed to have renounced any right to the surplus assets. The surplus will be allocated in its entirety to the members and beneficiaries and will be distributed pro rata to the benefits of each of them.
• Where the plan was established under a collective agreement, the matter will be sent to arbitration to determine the manner in which the surplus will be allocated among the members and beneficiaries, including those who are not covered by the collective agreement.

To find out more...

• The termination procedure
• Your role powers and responsibilities 
• The rules to follow to amend the plan or convert it into an SIPP
• The effects of changes in your business on an existing pension plan.