Member-funded pension plan
A member-funded pension plan (MFPP) is a defined benefit plan under which:
- the employer contribution is set in advance
- the remaining contributions required (including payments for any deficits) are paid by the plan members
- any surplus assets belong to the plan members
To limit the financial risk for plan members, an MFPP is funded as if the pensions of active and non-active members were fully indexed. However, full indexation cannot actually be granted unless the MFPP has surplus assets and will still be fully funded and solvent after indexing is carried out.
If an MFPP still has surplus assets after full indexation of the members' pensions, the plan can be improved if it will still be fully funded and solvent after the improvement comes into effect.
Such improvements can, for example, take the form of increased pension benefits or a reduction in member contributions.
Information for members
Since the members of an MFPP pay the balance of the plan's cost, they must be well informed on the inherent financial risk. For that reason, there are specific rules concerning the information that must be provided to them.
Coming into force of the MFPP regulation: 15 March 2007.
Although MFPPs are not aimed at specific group, they should be of particular interest to unionized workers. Workers' associations have indicated their members want to have access to a defined benefit plan. Moreover, at a time when employers are increasingly reticent about assuming the financial risks of defined benefit plans, workers' groups say that they are ready to take on such risks. The new MFPP responds to the concerns of both groups in that the plan members collectively assume the ultimate financial responsibility for the plan.
To find out more...
You can consult the text of the MFPP regulation, which was published on 28 February 2007, in the Gazette officielle du Québec, Part 2 - Laws and Regulations, page 1064, on the Publications du Québec website.