Important considerations when terminating a defined contribution or a defined benefit pension plan
This section presents only the main points to consider. The Supplemental Pension Plans Act remains the best tool in guiding your actions and decisions.
Important points to consider
The termination report
The termination report must reflect the same order of payment of benefits as that provided for under section 218 of the Supplemental Pension Plans Act so as to ensure that the payment of benefits to members and beneficiaries is in conformity with the Act.
Pensions in payment on the termination date
The pension fund must insure the payment of pensions with an insurer and have them valuated in the termination report in conformity with section 212.1 of the Supplemental Pension Plans Act.
In the case of a pension in payment on the termination date that is not insured on the date on which the termination report was prepared, its value must be established using the market conditions according to an insurer's rating.
Retirement pensions that would have been payable after the termination date
Pension funds cannot insure payments with an insurer for retirement pensions that would have been payable by the plan after the termination date.
Payment of benefits must be carried out by transferring the value of the pension into a locked-in retirement account (LIRA), a life income fund (LIF), another pension plan or to an insurer to purchase a life annuity, as the plan member chooses. In the last case, the amount of pension payable by the insurer may differ from the amount of the pension that normally would have been payable by the plan, since the amount depends on the annuity purchase rate, among other things.
Where a plan is insolvent and the employer is bankrupt, there is a risk in making cash advances (to plan members and beneficiaries) other than the payment of pensions authorized by the Régie des rentes du Québec.
Taking into account the amounts available in the pension fund and the order in which payments must be made under the Supplemental Pension Plans Act, if overpayments are made to some plan members and beneficiaries, the administrator must take the necessary steps in order not to penalize the other plan members and beneficiaries.
Reduction of benefits in the event of employer bankruptcy where a plan is insolvent
If the employer is bankrupt and the plan is insolvent, all members and beneficiaries affected by the termination may have their benefits reduced, including both active and non-active members, whether retired or not, as well as the beneficiaries.
Surplus assets and their allocation by the employer
If the plan has surplus assets and the employer has not dealt with their allocation within the 150 days provided, the consequences of such inaction depend on whether or not the plan was established by collective agreement.
In the case of a plan not established by collective agreement, the employer is considered to have renounced all right to the surplus assets. The surplus assets are therefore allocated to plan members and beneficiaries and distributed in proportion to the value of their respective benefits.
In the case of a plan established by a collective agreement, arbitration will be used to determine the allocation of surplus assets between members and beneficiaries, including those who are not covered by the collective agreement.
The 150-day time limit starts on the date on which the administrator receives the written notice of termination from the employer or the Régie's decision to terminate the plan, as the case may be.
Surplus assets and members and beneficiaries who cannot be reached
If the administrator does not know all of the members and beneficiaries for the purposes of allocation of surplus assets or is not able to contact them all, it must publish a notice in a daily newspaper inviting them to make a claim for benefits, whether there is a draft agreement or not.
Among those concerned, there may be former plan members as well as members and beneficiaries affected by the termination and mentioned in the termination report.
Get more information about allocation of surplus assets following plan termination, including recording the proposal for the allocation of surplus assets in a draft agreement.
Other points to be aware of
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