Pension plan funding in QuebecLinkedIn
There, in black and white
Bulletin NB Vol. 7 N. 21, December 2004
The performance of pension funds in 2004, coupled with the decline in interest rates throughout the year, could mean that the solvency position of many pension plans will be put to the test again. Pension plan sponsors that are required to do an actuarial valuation at the end of 2004 could be faced with significant increases in their funding costs.
The Régie des rentes du Québec (Régie) recently announced temporary rules it could use "in exceptional circumstances" to meet the short-term funding needs of some plan sponsors. The Supplemental Pension Plans Act (SPPA) states that the Régie may exempt a pension plan from the application of the Act’s current funding rules and, by mean of a regulation of exception, prescribe alternative funding rules applicable to the plan. More specifically and solely for the purpose of the next actuarial valuation, it might be possible to spread the amortization of the solvency deficit over a period of ten years (rather than five).
The Régie has set down three conditions that plans must meet in order to take advantage of these temporary rules. These three conditions are:
Pension plan sponsors wishing to take advantage of these exceptional provisions should do a preliminary analysis to assess the likelihood of being able to fulfil the Régie’s conditions. If they are positive about meeting these conditions, a request must be submitted to the Régie, outlining the plan’s financial situation and providing any other information the Régie will need to understand the company’s particular situation. It may also be necessary to have a meeting with the Régie to clarify and detail the specific conditions applicable to the plan. The next step is to send to the Régie an analysis report showing that the conditions have been fulfilled. When the Régie is satisfied that they have been met, it will prepare a draft regulation of exception applicable to the specific plan and recommend its approval to the Minister. The approval process takes about 6 months and the regulation will come into effect 15 days after its final publication in the Gazette officielle du Québec. The regulation of exception will apply only to the actuarial valuation to which it refers and any previous or subsequent solvency deficit is subject to the regular provisions of the SPPA.
Since these temporary rules are exceptional, a special framework governs them and it is a long, tedious – and irreversible – process. Plan sponsors wishing to take advantage of these exceptional temporary rules should start their preliminary analysis immediately if they hope to complete the process by the deadline for submission of their actuarial valuation to the Régie.
This is the latest information available but things are changing quickly and some issues still need to be addressed. We are in constant touch with the Régie and will let you know if there are any major developments in the future.
Finally, the Régie is planning a public consultation on pension plan funding principles early in 2005, which could result in a bill that would permanently amend from 2006 the current funding principles set out in the SPPA. The permanent provisions proposed by the Régie will be announced in 2005 and submitted to public consultation.
Please feel free to contact us for additional information.
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