The Government of Quebec gave an expert committee the mandate to study supplemental pension plans in Quebec. On April 17, 2013, the D'Amours Committee (the Committee) published its report entitled Innovating for a Sustainable Retirement System.
The report provides 21 recommendations divided into three series: the longevity pension, the amendments to be made to legislative frameworks governing defined benefit (DB) pension plans and personal savings. Following are highlights of the report.
1. Creation and implementation of a longevity pension
- The Committee proposed the introduction, over a five-year period, of a new public plan that would be mandatory for all workers.
- Under the proposed longevity pension program, as of age 75, all Quebec workers would have the benefits of a DB pension, whether or not they are members of an employer-sponsored DB plan. For every contribution year, the pension credit would be 0.5% of the salary subject to the contribution, up to the maximum pensionable earnings (namely C$51,000 for 2013).
- The objectives of the pension are to:
- Pool the longevity risk for the benefit of all Quebec workers.
- Allow a greater number of Quebec workers to achieve better financial health.
- Facilitate retirement savings planning for all Quebec workers, knowing that the longevity risk would at least be partly assumed as of age 75.
- Lessen the pressure on DB plans by reducing the longevity risk currently assumed by these plans.
- The pension would be administered like the Québec Pension Plan: namely by the Régie des rentes, and its governance modelled after that of the Québec Pension Plan. The assets would be managed by the Caisse de dépôt et placement du Québec. The Régie would have the power to vary the level of contributions, benefits and indexing of benefits according to the funded status of the benefit.
- The funding of the longevity pension would be based on contributions from employers and workers:
The longevity pension is only recommended for future years.
The plan's cost would be 3.3% of earnings up to the maximum pensionable earnings (C$51,000 for 2013). The cost would be shared equally by workers and employers.
The real cost would depend on the plan in which workers and employers participate.
- DB plans: if such plans are co-ordinated with the longevity pension, there would be a transfer of a portion of the share of the contribution corresponding to the funding of the longevity risk. Co-ordination would be optional in private plans, but mandatory for public plans.
- Defined contribution (DC) plans and personal savings: employers and workers could decide to redirect a portion of the contributions to the longevity pension.
- As noted above, the longevity pension would be implemented over a five-year period to minimize the impact on employers and workers.
2. Defined benefit plans
- The Committee recommends establishing identical funding rules for all plans, whether they are in the private sector or sponsored by municipalities, universities or other public-sector employers.
- The Committee also proposes that all plans be valued using a so-called "enhanced funding" method, which is based on the going-concern funding method but with certain changes. Said method would apply to both past and future services and would be used to determine the contribution for current service as well as the funding deficiencies, the only ones which would henceforth require additional funding. The deficiencies would be amortized over a 15-year period, which would be gradually reduced to 10 years. According to the Committee, this would ensure that the funding more closely reflects the actual cost of the plan.
- The Committee recommends amending the provisions of the Supplemental Pension Plans Act (SPPA) to ensure a better understanding of the level of risks, their disclosure and their management. Employers would be required to institute a funding policy which sets out the objectives to be reached taking into account various factors, including benefit security.
- During the five-year period following implementation of the enhanced funding method, the Committee recommends that the parties to a pension plan agree on the steps to be taken to reduce plan costs and secure benefits for past services. However, the basic commitment to DB plans must be protected and pensions in payment could not be reduced.
The restructuring measures would allow vested rights to be reviewed or suspended and could cover:
- indexation of the pension following retirement;
- indexation of the pension before retirement (deferred pension);
- bridge benefits (before age 65);
- early benefits taken into consideration when calculating the pre-retirement withdrawal benefit;
- amounts relating to the survivor's pension.
- These measures must be negotiated by the parties (including active and retired participants). However, in the absence of an agreement between the parties, as of the fourth year of the five-year period, the employer would have the option of eliminating or unilaterally amending the indexation of benefits, subject to certain conditions including a requirement that the employer make a contribution to the plan that would reduce the funding deficit in proportion to the impact of any indexation changes.
3. Personal savings
- The Committee recommends a rapid implementation of voluntary retirement savings plans (VRSP).
- It recommends that the government improve the current proposed VRSP by exempting employers who offer a group tax-free savings account (TFSA) from the obligation of offering a VRSP, as is the case for group registered retirement savings plans (RRSP) or for a voluntary registered DC pension plan.
- It recommends amending the SPPA to allow the payment of variable benefits from a DC plan similar to the benefits that could be paid from a registered retirement income fund (RRIF).
- It recommends allowing individuals over the age of 60 to withdraw locked-in funds held in an RRSP or RRIF more quickly, given the longevity pension.