Back in the fall of 2011, an expert committee chaired by Alban D’Amours was mandated by the Quebec government to analyze the state of the Quebec retirement income system and to make recommendations on how to improve it in light of the new economic and demographic realities.
The Committee released a voluminous report on April 17, 2013 entitled Innovating for a Sustainable Retirement System – A Social Contract to Strengthen the Financial Security of All Québec Workers. The 220-page report was published in French only, but a summary of the report is available in English.
Some key recommendations of the Committee include:
- Creation of a new public plan to provide “longevity pensions”
- The most ambitious proposal of the Committee is certainly the creation of a new public plan, alongside the Quebec Pension Plan, that would provide a defined benefit (DB) to retired Quebec workers once they attain age 75.
- Québec workers between the ages of 18 and 74 and their employers would be required to contribute to the plan. The Committee recommends an initial contribution rate of 3.3% of earnings (up to the maximum pensionable earnings) to be shared equally between workers and employers (i.e., 1.65% each).
- The plan would essentially be a career average earnings DB plan. The annual amount of the longevity pension would be equal to 0.5% of earnings of the worker in each contributory year (up to the maximum pensionable earnings). Earnings used to calculate the pension would be indexed until age 75.
- Longevity pensions would be payable from a fund administered by the Régie des rentes du Québec, and the assets would be managed by the Caisse de dépôt et placement du Québec.
- Measures to improve the viability of registered DB pension plans.
- The Committee recommends using a single valuation method for calculating ongoing DB plan funding. The preferred method, called “enhanced funding” method, would be somewhat less stringent than the current solvency approach. In particular, the discount rate would be determined by reference to market yields on high quality corporate bonds. The Committee proposes that a deficit be amortized over 15 years, but also suggests that the amortization period be eventually reduced to 10 years.
- Contribution holidays would only be permissible if the plan is fully funded on an “enhanced funding” basis and a solvency basis, and there is a provision for adverse deviation. Additionally, there would be a cap on the amount of any contribution holidays.
- The Committee recommends a series of measures to enhance plan governance, including the mandatory adoption of a funding policy and the performance of risk assessment analyses at regular intervals.
- The Committee is of the view that the Supplemental Pension Plans Act should be amended to allow members to make contributions in respect of deficits and to allow employers to recover an amount of surplus equal to the special payments made to fund a deficit.
- The Committee proposes a 5-year “restructuring period” during which plan sponsors could negotiate reductions of vested ancillary benefits (e.g., indexing, enhanced early retirement benefits). In other words, there would be a temporary exemption to the “void amendment” rule where the parties can reach an agreement on such a reduction. Unions would negotiate on behalf of unionized employees while non-unionized employees and retirees would be deemed to accept a reduction if less than 30% of them object to the proposal following a consultation.
- Measures to help Quebec workers save more for their retirement and provide them with more flexibility with their retirement savings
- The Committee is endorsing the concept of voluntary retirement savings plans (VRSP), and urges the government to move ahead with the existing proposal without delay (subject to some minor adjustments).
- The Committee also suggests amending the current legislative framework so as to make the withdrawal of retirement savings more flexible.
The Minister of Labour, Employment and Social Solidarity, Agnès Maltais, took advantage of the release of the report to announce that a public consultation on the future of the retirement income system would likely take place in the fall of 2013.
She also announced that the Quebec government would take steps within the coming months to: (i) extend the solvency funding relief measures, which are set to expire on December 31, 2013; and (ii) table a bill to implement its new VRSP.