Radar municipal

On January 23, the Government of Quebec adopted the Regulation respecting the funding of defined-benefit pension plans of the municipal and university sectors (Regulation). The Regulation will come into force on February 22, 2024, and amendments will apply for actuarial valuations as at December 31, 2023.

After a significant rise in interest rates in previous quarters, the year ended with slightly lower rates than at the beginning of 2023. Despite the large variation of this key indicator, the financial position of the average pension plan remained relatively stable over the year. This favourable financial position allows many administrators and pension committees to prioritize and implement strategies that benefit their organization.

The average pension plan’s going concern position remained relatively stable in Q3 and since the beginning of the year, whereas their solvency position improved during those same periods. Higher interest rates are generally favourable for pension plans, whose financial situation has remained at enviable levels for some quarters.

The average pension plan funded ratio changed little in Q2 2023 and year-to-date.

As at June 30, 2023, the average funded ratio of municipal and university sector pension plans is 102% for the Previous component and 119% for the New component (the components distinguish between years of service accumulated before and after January 1, 2014, for the municipal sector and January 1, 2016, for the university sector). The ratios for both plan components are at the same level as at the beginning of the quarter, up 3% and 4% respectively since the beginning of the year.

On May 10, the Quebec Court of Appeal dismissed all appeals challenging the Act to foster the financial health and sustainability of municipal defined benefit pension plans (“Bill 15” or the “MSPP Act”). Honourable Justices Mainville, Gagné and Rancourt of the Court of Appeal unanimously upheld the ruling rendered by the Honourable Justice Moulin of the Superior Court.

On April 5, the Government of Quebec published a draft Regulation respecting the funding of defined-benefit pension plans of the municipal and university sectors (draft Regulation), which replaces the current regulation for pension plans in this sector. Market stakeholders had been expecting this announcement, since this regulation covers the specifics of funding and administering defined benefit pension plans in the municipal and university sectors.

After a quarter marred by market and interest rate volatility, the average pension plan funded ratio at the end of Q1­ 2023 remained consistent with that as at December 31, 2022.

As at March 31, 2023, the average funded ratio of municipal and university sector pension plans is 102% for the Previous component and 119% for the New component (the components distinguish between years of service accumulated before and after January 1, 2014 for the municipal sector and January 1, 2016 for the university sector). The ratios for both plan components are respectively up 3% and 4% over the quarter.

Today we are launching the Normandin Beaudry Pension Plan Financial Position Index. Our specialists closely monitor the financial position of our clients’ defined benefit pension plans and will present this index to you on a quarterly basis, and this, separately for the Quebec municipal and university sector.