Bill 68 launches target benefits pension plans in Québec

November 4, 2020

On October 7, Québec’s Minister of Finance, tabled Bill 68 (Bill): An Act mainly to allow the establishment of target benefit pension plans to amend the Supplemental Pension Plans Act, thereby enabling the creation of target benefit pension plans (TBPPs) in Québec. The long-awaited Bill is a right of a recommendation from the expert panel report: Innovating for a Sustainable Retirement System chaired by Alban d’Amours, published in 2013. Retraite Québec consulted with employer and union representatives to help define certain aspects of TBPPs, particularly in terms of funding. Currently, the only businesses permitted to establish a TBPP in Québec are those in the pulp and paper sector that are under financial distress.

What you need to know

  • A TBPP is a pension model that has features of both a defined benefit (DB) plan and a defined contribution (DC) plan that are of interest to both employers and employees.
  • A TBPP provides retirement protection similar to a defined benefit plan in the form of a lifetime annuity payment until death.
    • In addition, the employer’s contribution to the plan is fixed, and the risks associated with longevity and the return on savings are borne by the workers and retirees, like a DC plan. It is a more flexible than a typical DB or DC plan because it has built-in stabilization mechanisms that ensure its financial health, such as the ability to adjust employee contributions or alternatively, reduce benefits.

Characteristics of the Bill

The Bill outlines some of the following characteristics for TBPPs:

  • the employer contribution is limited to that stipulated in the plan;
  • the contributions required to be paid to the plan, less the employer contributions, are to be borne by the members and beneficiaries; and
  • the benefits, including pension benefits in payment, may be reduced due to insufficient funds.

The Bill will also permit both DB plans and TBPPs to provide that the degree of solvency for the purposes of member benefit payments be established at intervals shorter than the plan’s fiscal year. If certain conditions are met, the value of a pension benefit in payment may be transferred to another pension plan, such as a life income fund or a locked-in retirement account.

The Bill also introduces: rules applicable to the conversion of certain multi-employer pension plans into TBPPs; compliance requirements for certain TBPPs in the pulp and paper sector; special rules for member-funded pension plans in the municipal and university sectors; and certain measures to mitigate the consequences of the state of emergency related to the COVID-19 pandemic.

TBPP and other jurisdictions

With the introduction of the Bill, Québec now joins several other provinces expressly contemplating TBPPs in their pension standards legislation. TBPPs are currently permissible in New Brunswick (where they are referred to as “shared-risk plans”), Alberta, British Columbia and to a limited extent, Saskatchewan. Ontario and Nova Scotia have passed legislation permitting TBPPs, but as of the date of publication, they had not yet been declared in force. The federal Government introduced TBPP legislation in 2019, but it died upon the call of the federal election. It has not yet been reintroduced.

Conclusion

This long-awaited Bill addresses the concerns of many employers in Québec in terms of financial risk sharing. The Québec business community welcomes this Bill, and the Conseil du patronat du Québec went as far as to mention in its brief to the Québec Committee on Public Finance, held on October 29 and November 3, 2020, that it receives this Bill very positively.

However, the Bill does not make everyone happy in Québec. The Fédération des travailleurs et travailleuses du Québec (FTQ) issued a press release denouncing TBPPs and made representations to amend the Bill while the Confédération des syndicats nationaux (CSN) welcomes the Bill and considers it a step in the right direction.

Employers may want to consider converting any previously established voluntary retirement savings plans or DC plans into a TBPP, once the legislation is declared in force. TBPP minimize DC plans’ shortcomings, such as risk management, where the members have difficulty planning their retirement because they are often poorly qualified to make investment decisions and they have difficulty estimating the DC plan’s financial outcome. By permitting TBPPs, Québec hands employers an additional option to attract quality employees looking for favourable working conditions in these unstable times greatly caused by the global pandemic. Establishing and offering a TBPP could be a useful recruitment and retention tool for employers in Québec, while providing the comfort of predictable, fixed contribution costs.