Multi-employer negotiated-contribution pension plans
Chapter X.2 of the Supplemental Pension Plans Act sets out the special provisions relating to multi‑employer negotiated-contribution pension plans.
Pension plans subject to Chapter X.2 of the Supplemental Pension Plans Act have the following characteristics:
- They are multi-employer plans that have Québec members and beneficiaries
- They are defined contribution and defined-benefit plans
- They were in force on 18 February 2015
- They may not be amended unilaterally by a participating employer.
Such plans are called "negotiated-contribution plans."
Plans outside Québec
Affected plans include negotiated-contribution plans registered with a Canadian
supervisory authority other than Retraite Québec, and which include
Québec members and beneficiaries.
Worth knowing about
For such plans, the application of the provisions of Chapter X.2 of the Supplemental Pension Plans Act must be adapted as required, particularly where the recovery plan is concerned. While the reductions in the benefits of members and beneficiaries subject to the Supplemental Pension Plans Act can be less than those that would be required if the plans were registered with Retraite Québec, they cannot exceed those provided for in Chapter X.2. However, members and beneficiaries whose benefits are governed by the Supplemental Pension Plans Act must be consulted in accordance with the provisions of Chapter X.2.
With regard to the payment of the benefits of the Québec members and beneficiaries, the degree of solvency used is the one determined in the report on the actuarial valuation submitted to the supervisory authority with which the plan is registered. The degree of solvency is calculated in accordance with the provisions of Québec legislation.
Members and beneficiaries outside Québec
Adaptations must be made in the case of the members and beneficiaries of negotiated-contribution plans who are not from Québec. The plan administrator must comply with the laws that apply to such members and beneficiaries, particularly with regard to reductions in benefits, the payment of benefits, and employer withdrawals.
In the case of a negotiated-contribution plan, the contributions that employers and plan members must make during a fiscal year are the ones that have been negotiated and provided for in the plan text.
However, the total of the employer and member contributions, as negotiated, must be sufficient to cover the costs of the negotiated-contribution plan and at least equal to the sum of:
Where the plan's degree of solvency is less than 90%, the special improvement payment corresponds to the higher value between the value of the additional obligations determined on a funding basis and the value of the additional obligations determined on a solvency basis.
The Supplemental Pension Plans Act exempts negotiated-contribution plans from the requirement concerning the constitution of a stabilization provision. The current service contribution does not include the current service stabilization contribution, and no stabilization deficiency can be created.
In addition, under the Supplemental Pension Plans Act, where a negotiated-contribution plan has a funding deficiency, the maximum amortization period is 12 years.
The Supplemental Pension Plans Act provides that a complete actuarial valuation is required at the end of each fiscal year.
Submitting the actuarial valuation report to Retraite Québec
The plan administrator must send Retraite Québec any actuarial valuation report for a negotiated-contribution plan within
6 months of the valuation date.
If an actuarial valuation report is not submitted to Retraite Québec within the allotted time prescribed by the Supplemental Pension Plans Act,
fees will be payable to Retraite Québec.
Where an actuarial valuation report indicates that the negotiated-contributions are insufficient to fund the cost of the plan, the person or body empowered to amend the plan must produce a recovery plan.
The recovery plan must be accompanied with an actuary's certification that, as a result of the application of measures provided for in the plan text, the contributions will be sufficient as at the date of the actuarial valuation that first showed the insufficiency.
The recovery plan can provide for one or more of the following measures:
- an increase in employer contributions, if the employers so agree
- an increase in member contributions or, if the plan is non-contributory, the establishment of such contributions
- a reduction of the benefits of the members and beneficiaries for service carried out before or after the effective date of the amendment.
- Amendments reducing benefits cannot reduce the value of benefits in payment on an on-going basis more than the reduction applicable to the value of the benefits of active members.
- Amendments reducing benefits must not result in excess plan assets, either on a funding basis or on a solvency basis.
- No amendment reducing benefits can have an effect on benefits that have already been paid on the date the amendment is registered.
Adopting a recovery plan
The way a recovery plan is adopted depends on whether the negotiated-contribution plan text already provides for a reduction in benefits in the event of insufficient contributions.
If the plan text does not allow for a reduction in benefits
If there is no such provision in the plan text, a recovery plan can be adopted if less than 30% of members and beneficiaries are opposed.
The administrator must send each member and beneficiary a written notice that includes the following information:
- the subject of the amendments provided for under the recovery plan
- the effective date of the amendments
- the consequences provided for under the Supplemental Pension Plans Act if a recovery plan is not adopted
- the 60-day period in which members and beneficiaries can voice their opposition to the recovery plan.
In addition, unless every plan member or beneficiary has been personally notified, the administrator must also have published a notice containing the information listed above.
If the plan text allows for a reduction in benefits
The recovery plan can be adopted without consulting the members and beneficiaries in the following cases:
- On 18 February 2015, the plan text, or an ancillary document registered with Retraite Québec or the applicable supervisory authority includes a provision that allows the benefits of the members and beneficiaries to be reduced.
- The plan was amended after 2 April 2015 to allow for the reduction of the benefits of the members and beneficiaries when a recovery plan is required. The members and beneficiaries were consulted beforehand, and less than 30% were opposed.
Unless each and every plan member or beneficiary was personally notified, the administrator must have published a notice containing the information listed in the previous section.
Submitting documents to Retraite Québec
The recovery plan must be submitted to Retraite Québec within 18 months following the date of the actuarial valuation whose report revealed insufficient contributions.
Not producing a recovery plan within the allotted time frame will result in the same
penalty as in the case of an actuarial valuation report that is late.
Application for registration of the amendment to the plan
application for registration of an amendment to a plan as a result of the recovery plan must be submitted within 24 months following the date of the actuarial valuation showing insufficient contributions.
If the application for registration is not submitted to Retraite Québec within the allotted time frame, the benefits of the active members will cease to accrue on the date of default.
If no recovery plan or amendment is submitted within 60 months following the date of the actuarial valuation showing insufficient contributions, the person who has the power to amend the plan must have it terminated on the expiry date of the 60-month period.
In a negotiated-contribution plan, an employer is only responsible for the payment of the negotiated employer contribution.
The employer has no access to surplus assets and cannot use them to take any negotiated-contribution holidays, unless the tax rules require it.
Furthermore, the concept of special monitoring (commonly known as banker's clause) does not apply to a negotiated-contribution plan given that the surplus assets are allocated entirely to the participants and beneficiaries, and no amortization payment is required. Only the negotiated-contribution is required.
The use of surplus assets during the plan's existence is allowed if the following two requirements are respected:
- on a going concern basis:
Plan assets > 105% × plan liabilities
- on a solvency basis:
Plan assets > 105% × plan liabilities
The amount of surplus assets that may be used corresponds to the lesser of the surplus available on a going concern basis and on a solvency basis determined in accordance with the two criteria listed above. As provided in the plan text, the determined surplus assets may be used up to a maximum of 20% per fiscal year.
Withdrawal of an employer
If an employer no longer has active members in its employ, the plan must be amended to proceed with the withdrawal of the employer no later than the end of the fiscal year during which the last plan member ceased to accumulate benefits.
The benefits of the members and beneficiaries affected by the withdrawal of an employer party to a negotiated-contribution plan must be paid according to the assets available for the members connected to that employer in the same order of payment provided for
section 218 of the Supplemental Pension Plans Act .
However, before the payment date, an employer can pay an additional amount into the pension fund in order to ensure full or partial payment of the benefits of the members or beneficiaries affected by the withdrawal.
The amount paid will be part of the assets allocated to the group of members affected by the employer's withdrawal and will be used in accordance with the payment order provided for in
section 218 of the Supplemental Pension Plans Act . Furthermore, the amount will be used for all the members and beneficiaries who are affected by the employer's withdrawal.
Upon withdrawal of an employer, the plan administrator must submit to Retraite Québec an
Application for Registration of an Amendment to a Pension Plan as well as a report reflecting the withdrawal.
Minimum employer contribution
Supplemental Pension Plans Act, the calculation of the minimum employer contribution (section 60 of the Supplemental Pension Plans Act ) no longer apply to negotiated-contribution plans.
The annual statement must mention that:
- If the negotiated contributions are insufficient, the amount of any pension can be reduced, even after payment begins.
- Negotiated contributions are considered insufficient if they are less than the contributions required, according to the actuarial valuation report, to fund benefits under the plan.
- If the negotiated contributions are insufficient, measures will be taken in accordance with a recovery plan.
The statement provided upon cessation of active membership should contain the same adjustments as the annual statement.