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Member, Beacon International Group, Ltd.
MONTREALQuebec has recently introduced a bill that would temporarily relax certain rules relating to the funding of defined benefit and hybrid pension plans.
Under Bill 102, eligible employers would qualify for an extension of the schedule for funding their pension deficits from the current five-year period to a 10-year period. Employers are automatically eligible for the extension if they are a municipality or a university-level educational institution. Employers can also become eligible if the pension plan members and beneficiaries consent to the new schedule. Active and retired members of a pension plan are deemed to have consented unless 30% of one of these groups objects to the change, according to the bill.
In addition, employers who provide the pension committee with a guarantee, such as a letter of credit, are also eligible for the revised funding schedule, according to the bill. A letter of credit is a promise by a financial institution to a creditor guaranteeing that a debt will be paid if a triggering event takes place.
The bill also allows employers to request that an actuarial valuation completed after Dec. 30, 2004, exclude any payments on solvency deficits from previous valuations. This measure effectively allows employers to combine all the plan's deficits and start a new funding schedule as of the date of the new valuation, according to a report published by Watson Wyatt Canada. Employers must first utilize this option before requesting an extension of the funding schedule, the bill states.
The measures featured in Bill 102 are temporary because Quebec's Minister of Employment and Social Solidarity will be conducting a consultation on permanent revisions to the province's pension funding rules.