Amendments reducing benefits
As the employer, you can decided on the amendments to be made to the plan text, provided the plan text empowers you to do so. You can then decide to no longer offer certain rights, privileges or benefits to the members and beneficiaries. However, certain rules apply and the amendments cannot have retroactive effect except in certain specific situations.
The amendments reducing benefits concerned are those that:
- eliminate a refund or a benefit
- limit eligibility for a refund or a benefit
For example: restricting entitlement to a disability pension for members hired before 1 January 2012.
- reduce the amount or value of the benefits of members and beneficiaries.
- reducing a pension from 2% of earnings to 1,5% of earnings per year of service
- ceasing to index pensions
- reducing the employer contribution from 5% to 4% of earnings for a defined contribution plan.
The reductions are determined on an individual basis.
Effective date of the amendments concerned
The amendments reducing benefits concerned cannot take effect:
prior to the effective date of the collective agreement (or the arbitration award or decree) establishing the amendment, with respect to the members affected by the collective agreement
in other cases, before the date the written notice setting out the objective of the amendment is sent to the members.
Amendments pertaining to the normal pension
Amendments pertaining to the normal pension, the method used for calculating such a pension or any other benefit established on the basis of that pension or method may apply only to service that is subsequent to the effective date.
Two helpful examples...
Example 1: You amend the plan for the union members so that it limits eligibility for an unreduced early pension. The collective agreement establishing the amendment for the affected members takes effect on 30 June 2012. The amendment to the plan can only apply to service after 30 June 2012.
Example 2: You want to amend the text of your employees' pension plan, which is a defined benefit plan where pensions are determined by a final pay formula, by reducing the normal pension from 2% to 1,5% of earnings. The notice of change was sent to the members on 30 September 2012. The amendment can only apply to service after that date. Therefore, a member who is active from 2006 to 2020 and whose average final pay is 56 000 $ would be entitled to a deferred pension of 14 490 $ (2% × 56 000 $ × 6,75 + 1,5% × 56 000 $ × 8,25).
Exceptions – allowable retroactive period
An amendment reducing benefits can have effect before the date on which the notice is sent or the effective date of the collective agreement, as the case may be, in the following three situations:
Worth knowing about...
- Its purpose is to bring the plan into conformity with tax rules.
- Its purpose is the withdrawal of an employer that has declared bankruptcy, and we have given our authorization.
- In this case, the withdrawal must take effect on the date of the bankruptcy even if it reduces the benefits of the members before the date on which the notice informing them of the withdrawal is sent.
- All affected members and beneficiaries have consented to the amendment, and we have given our authorization.
These three exceptions do not apply, however, if payment of the pension has already begun.
Thus, it is never possible to amend a plan to reduce the amount or value of a pension that is already in payment on the date the notice is sent or the date on which the collective agreement takes effect, as the case may be.
Reductions and plan funding (defined benefit plans)
Only contributions that become due after the actuarial valuation report has been submitted can be reduced to take into account an amendment (authorized and registered) that reduces benefits retroactively. Even if the amendment is authorized and registered, thereby reducing the plan's costs, any outstanding contributions that had not been paid into the pension fund at the time the report was submitted must, nevertheless, be paid in full with interest. If the plan is terminated, the contributions must be taken into account when the employer's debt is calculated, even if the plan is solvent at the time it is terminated.
Supplemental Pension Plans Act (sections 19, 20, 21, 198, 199, 228 and 229)