A number of employers who contribute to multi-employer pension plans do not know that their financial liability is not limited to the contribution they undertook to pay in the collective agreement. The current financial situation of pension plans could result in a rude awakening.
Multi-employer pension plans are generally set up by a union and participating employers undertake to contribute to the plan in their collective agreements with the union. Many of these plans are both defined benefit and defined contribution plans in the sense that the plan promises a pension (defined benefit) financed by contributions payable pursuant to the collective agreements. For purposes of the Supplemental Pension Plans Act (“SPPA”), this type of plan is treated as a defined benefit plan.
In many cases, employers were told that their financial obligations were limited to paying the contribution provided in the collective agreement. However, this is not true.
In Quebec, the employer is responsible for funding defined benefit pension plans, and the rules that apply to multi-employer pension plans are the same as those that apply to single-employer pension plans. This means that the sum of the employee and employer contributions must be sufficient to cover the current service cost and special payments for a given year. If contributions are insufficient, it is possible to make certain adjustments, such as reducing pension benefits for future service. However, if the pension plan situation has significantly deteriorated, serious consideration must be given to increasing the contributions since, contrary to the rules in effect in the other Canadian provinces, in Quebec, members’ vested benefits cannot be reduced.
Similarly, if a participating employer withdraws from a multi-employer pension plan, that is to say, if its participation in the plan is terminated, the employer must pay its share of any pension plan deficit, just as an employer must do in the case of the termination of a single-employer plan.
The situation described above is not new and has existed since at least 1990, that is to say, since the SPPA came into force. However, the current financial situation of pension plans being what it is, plan administrators no longer have any leeway and employers may face additional disbursements. It is important to note that the SPPA applies to a group of Quebec members even if the multi-employer plan is registered outside Quebec.