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Quebecs Bill 68 Receives Assent Contains Some Surprises

	InfoFlash is an electronic publication to keep you informed about emerging business news as it happens. Feedback? Related Publications Bill 68 Amendments to Supplemental Pension Plans Act Affect Phased Retirement and Other Aspects of the Act A Closer Look at Phased Retirement Bill 30 Quebecs Bill 30: What Does it Mean for Defined Benefit Plan Sponsors? Passage of Bill 30 Significantly Changes Rules for Quebec Defined Benefit Plans

Quebecs Bill 68, An Act to amend the Supplemental Pension Plans Act, the Act respecting the Qubec Pension Plan and other legislative provisions, was assented to on June 20, 2008. When it was introduced, the main goal of Bill 68 was to amend the phased retirement provisions of the Supplemental Pension Plans Act (SPPA). However, it also made some amendments to Bill 30, the Act to Amend the Supplemental Pension Plans Act, particularly with respect to the funding and administration of pension plans and the Act respecting the Qubec Pension Plan (QPP Act).

Now, as a result of some last-minute amendments, the final version of Bill 68 contains some new provisions. These include amendments to the SPPA in response to the recent Quebec Court of Appeal (QCA) decision in Multi-marques Distribution inc. c. Rgie des rentes du Qubec (Multi-marques) and changes to the provinces letter of credit (LOC) rules.

New Provisions in Response to Multi-marques

In Multi-marques, the QCA found that it was possible for a multi-employer pension plan (MEPP) to reduce accrued benefits without violating the SPPA. While this position is consistent with the law regarding MEPPs in other Canadian jurisdictions, it was a defeat for the Rgie des rentes du Qubec (Rgie), which had argued that the benefit reductions violated the SPPA provisions regarding full funding on termination.

As a result of Multi-marques, Bill 68 was revised to add section 14.1 to the SPPA. This section states that DB and hybrid pension plans cannot limit or reduce the crediting of service, the accumulation of benefits or the amount or value of benefits accrued regarding service prior to a given valuation conditional on extrinsic factors, unless expressly permitted by the SPPA. Extrinsic factors include the following:

• The financial position of the pension fund;
    
• Certification of an association of employees (or cancellation thereof);
    
• Employer contributions paid for obligations arising from the plan for a member or beneficiary;
    
• The exercised discretionary powers attributed exclusively to a person other than a member or beneficiary;
    
• Technological or economic changes in the employers business, including division, merger or termination;
    
• The withdrawal of an employer from a pension plan; and
    
• The termination of a pension plan.

In addition, another new section states that no DB or hybrid plan can reduce or limit an employers obligations towards members because of the employers withdrawal from the plan or the termination of the plan.

While these provisions came into effect June 20, 2008, Bill 68 states that they are declaratory, meaning that they clarify the full funding rules in the SPPA. As a result, it is possible that the provisions will apply to Multi-marques. Regardless of potential retroactive application to that case, they will undoubtedly prove problematic for other plans with Quebec members.

LOC Provisions

In another surprise addition, the final version of Bill 68 adds section 288.1.1 to the SPPA, which provides for the temporary availability of LOCs. This section states that once an employer provides the plans pension committee with an LOC, both the employers minimum contribution and solvency amortization payments can be reduced. The amount of the reduction cannot be more than 20% of the difference between the pension funds assets and liabilities, determined on a solvency basis at the date of the last complete actuarial valuation. This reduction is roughly equivalent to the amount of one annual solvency deficiency payment. 

The LOC forms part of the plans assets for determining its solvency. However, section 288.1.1 provides that the amount of the LOC (or the total amount of all LOCs), only constitutes an asset up to 15% of the value of the plans liabilities. In the original version of Bill 68, this provision was contained in the amendments to Bill 30. It has now been added to both Bill 30 and the SPPA.

These provisions came into effect on June 20, 2008, but will cease to have effect on December 31, 2009.

Changes to Phased Retirement Provisions

The final version of Bill 68 contains a number of amendments to the phased retirement provisions found in the original version of the legislation, including the following:

• Plan sponsors that wish to offer phased retirement will only need to amend their plans once to allow for phased retirement agreements to be entered into and to provide some of the details set out in the Bill. This differs from Qubecs usual approach to discretionary provisions, which is to require amending resolutions every time a discretionary provision is used.
    
• The details of the payment of the phased retirement pension are now indicated to be as set out in the phased retirement agreement between the member and the employer, subject to rules on the maximum benefit under the SPPA.
     
• The payment of a phased retirement pension to a member of a DC plan is now stated to begin as early as age 55 and also be based on the terms of the phased retirement agreement, which can contain provisions more advantageous than those listed in the SPPA, subject to the maximums set out in the SPPA.
     
• The maximum annual phased retirement benefit payable to a DC plan member cannot exceed 60% of the ceiling on the life income the member could receive under a life income fund. This ceiling amount is established at the beginning of the year during which payment of the benefit begins, based on the amounts credited to the member at that date and the age of the member at the end of the preceding year. This amount must be re-determined at the beginning of each year.
     
• In the case of a conflict between the terms of a pension plan and the terms of a phased retirement agreement, the latter are now stated by the SPPA to prevail for both DB and DC plan members.
     
• The phased retirement provisions will not apply to members who are in the employ of a municipality unless the municipality adopts a resolution explicitly stating that they apply.
     
• Plan administrators are now required to add an explanation of the members rights and obligations related to phased retirement with the annual statements for the plan year ending after June 20, 2008. This must only be done once afterwards, the subject will fall under the general rules for describing plan rights and obligations in a plan summary.

Other Amendments

In addition to creating an obligation to transmit information about an association that purports to represent employees, the final version of Bill 68 adds section 113.2 to the SPPA, which states what pension committees must do when they receive a request from such an association for the name and address of persons it claims to represent. The committee must send notice of the request (containing the specified content) to the members in the first statement sent out after the request is received, be it an annual or a termination statement. This must be sent to all of the members the association claims to represent, even those for whom an annual statement would not otherwise have been required because they have received a more recent termination statement. The committee must then give the association the names and addresses of the persons who give their consent within the specified time. The committee is only required to comply with each associations request once; if it chooses to send a subsequent notice, it may charge the association a fee to do so.

The amendments to Bill 30 contained in the original version of Bill 68 are largely unchanged. The only addition of note is that plan members now have 60 days to file an objection to a proposed amendment allowing an employer to appropriate surplus from the plan, instead of 30 days.

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