Termination of a defined contribution plan
Who can terminate a plan?
Changes in a company (merger, reorganization, sale, bankruptcy, closure) can result in termination of a pension plan. Even if no such events occur, the employer can nevertheless decide to terminate a plan.
An employer cannot terminate a plan if:
- a collective agreement prohibits the employer from terminating it
- the plan has become compulsory under an order or decree and no provision gives the employer the right to terminate the plan.
Retraite Québec can terminate a plan if:
Worth knowing about...
- a plan no longer has any active members
- the employer fails to collect member contributions or to pay employer or member contributions into the pension fund
- the plan administrator, its delegate or any other party to the plan fails to comply with an order issued by Retraite Québec.
Before terminating a plan, Retraite Québec must give the administrator advance notice of its intention.
How is a plan terminated?
Once the decision to terminate a plan has been made, the plan's members, beneficiaries and administrator are informed. The administrator must then carry out certain tasks within prescribed time limits in order to liquidate the pension fund.
Terminating a plan takes at least four months. Some aspects concern the plan's members and beneficiaries in particular.
If the plan has a deficit
If the employer owes money to the plan and the plan administrator is unable to recover the sums due because of the employer's bankruptcy, for example, the amounts credited to the accounts of all members and beneficiaries may be reduced.
If any unpaid plan expenses were to be paid by the employer and the employer is bankrupt, those expenses may be deducted from the accounts of the plan's members and beneficiaries.
If the plan has surplus assets
If the plan has surplus assets upon termination, the members, the beneficiaries and the union (if any) will be consulted on how the surplus will be allocated between the employer and the members and beneficiaries, unless the employer has already decided to allocate the entire amount to the members and beneficiaries.
Generally, a draft agreement is used to consult the members and beneficiaries on how the surplus is to be allocated.