Regulation respecting the funding of pension plans of the municipal and university sectors

On February 7, the Quebec government adopted by decree the final regulation regarding the funding of defined benefit pension plans in the municipal and university sectors. The main objective of this regulation is to make the Supplemental Pension Plans Act (SPP Act) currently in force applicable to these plans.

The main changes are as follows:

Deficit amortization

The current deficit amortization period is 15 years. This period, for the current component only, will gradually be reduced to reach 10 years for actuarial valuations beginning as at December 31, 2028.

Asset smoothing

The market value of assets must currently be used during the actuarial valuation on a going concern basis. The use of a smoothed asset value will now be permitted. This method makes it possible to level out short-term fluctuations in assets and therefore stabilizing the financial position of the plan.

Residual benefits (payment of benefits when the solvency ratio is less than 100%)

Currently, if the plan’s solvency ratio is less than 100% and residual benefits are required when a benefit disbursement to a member or beneficiary occurs, the funding of these residual benefits must comply with the terms provided for by the SPP Act

Funding of residual benefits will no longer be required to fully disburse a termination or transfer request benefit occurring as of February 22, 2024. In addition, the plan may provide that the balance of the residual benefits as of February 22, 2024, be paid in full without being funded.

However, residual benefit funding will remain mandatory if a restructuring agreement was reached prior to February 22, 2024, and required it.

Finally, it was clarified that the rules relating to contribution cost sharing to fund residual benefits do not apply to plans for which funding is required in a restructuring agreement reached before February 22, 2024.

Asset surplus

Consultation process

Currently, the allocation of asset surplus to pay the value of additional liabilities resulting from a modification of the previous component must be part of a fairness perspective between the active member group and that of deferred and beneficiary members. Thus, after consultation, if more than 30% of active members or 30% of deferred and beneficiary members oppose the allocation, it is presumed to be inequitable.

The regulation provides that a consultation process will only be required when changing the order or terms of the allocation of asset surplus. The modification cannot then take place if more than 30% of the total members, i.e. all active members, deferred members, and beneficiaries, oppose it.

Allocation

The disbursement of amounts to the employer or members is now permitted when allocating asset surplus from the previous component for the municipal sector and from the current component for the university sector if this allocation is permitted respectively under the RRSM and the RRSU Act.

Lastly, in certain situations, an allocation of asset surplus may be limited in order to maintain the solvency ratio above 105%.

Other changes

Deferment of contributions for the current component

It will now be possible not to apply the deferment of contribution principle to the current component if the plan provides for it in its funding policy.

Plan termination

If the plan provides for it, it will be possible to terminate the previous component of the plan only if all members in this component are retirees and the plan is not subject to any modification or suspended indexation following the restructuring, if applicable.

In the event of termination, the asset surplus of one component cannot be transferred to the other component.

Disbursement methods

It will now be possible to consider the two components as a single component for certain disbursement methods (forms of pension, vested benefits within the plan or transfer outside the plan, transfer vehicle).

Additional Disclosures

Certain additional information must be disclosed in members’ annual statements and actuarial valuation reports.

Provision for adverse deviation (PfAD)

Some modifications will need to be reflected in the PfAD calculation.

Coming into force

This regulation comes into force on February 22, 2024, and applies to any actuarial valuation after December 30, 2023.