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© Copyright 2000 Rogers Media. The following article first appeared in the May 2000 edition of
BENEFITS CANADA magazine.
Out with the old
Bill 102 is good news for Quebec plan sponsors faced with uncertainty over contribution holidays.
National employers may not be so enthusiastic.
By Paul Litner
This is shaping up to be a watershed year for pension reform. Following significant amendments to pension
legislation in Alberta and Ontario, Quebec introduced Bill 102, An Act to Amend the Supplemental Pension
Plans Act, on March 16. The Bill adds 60 new provisions to Quebec's Supplemental Pension Plans Act (SPPA)
and amends 195 others. According to Danièle Mayrand, a partner in the Quebec law firm of Desjardins
Ducharme Stein Monast, this is "the most ambitious review of the SPPA since it came into force on Jan. 1,
1990."
The sweeping changes include immediate vesting of all pension benefits. According to Mayrand, this will
eliminate partial plan terminations under the SPPA, although individuals who cease active membership in
certain circumstances will retain their status for purposes of any allocation of surplus on full plan
wind-up.
Also of great interest, Bill 102 provides a mechanism for an employer to confirm its legal right to
contribution holidays. Since the Supreme Court of Canada's 1994 decision in Schmidt vs. Air Products, the
rules regarding a company's legal entitlement to take contribution holidays were thought to be more or less
resolved. Unless pension legislation or plan provisions expressly mandate a specific employer contribution,
or otherwise prohibit contribution holidays, these holidays were considered permissible where the
employer's contribution is based on actuarial calculations.
Yet some uncertainty has remained. For instance, the Supreme Court refused to hear an appeal from the
decision of the Quebec Court of Appeal in the 1995 case of Chateaneuf vs. TSCO of Canada. That case
appeared to be at odds with court decisions in other provinces in ruling that the right to take
contribution holidays is dependent upon entitlement to surplus ownership on plan wind-up.
Bill 102 allows an employer to maintain the status quo with respect to contribution holidays.However, if
the employer wants to clarify its right to these holidays, it can amend the plan in accordance with Bill
102. The amended provision then takes precedence over any other plan provision or agreement, and it will be
binding on anyone having rights or obligations under the plan. An amendment can be made in one of two ways:
*Consent. Based on a proposal pursuant to which the employer has obtained the necessary consents (this is
not defined, but according to the Régie des rentes du Quebec these are the consents required under the
terms of the plan), as well as the consent of all unions representing plan members.
* Unilateral Amendment. The employer may amend the plan unilaterally provided that it meets two criteria.
First, the plan must not expressly prohibit the employer from taking contribution holidays or specify a
compulsory minimum employer contribution. And second, one of the following improvements must be made to the
plan: 50% or less of the value of benefits credited to members (including benefits credited for service
prior to Jan. 1, 1990) are funded by the members' contributions with interest, or interest credited on
members' contributions (both required and voluntary) are at least equal to the fund rate of return.
In addition, prior notice of any amendment clarifying the right to take contribution holidays must be given
to all interested parties at least 60 days before the effective date of the amendment.
Bill 102 also provides an express right to take contribution holidays using excess surplus unilaterally,
without amending the plan. This helps plan sponsors with legal restrictions in their plan that prevent them
from taking these holidays, and who cannot contribute to the plan due to the excess surplus restrictions in
section 147.2(2) of the Income Tax Act.
Bill 102 will be welcomed by plan sponsors in Quebec that have faced uncertainty over the contribution
holiday issue. However, the Bill's provisions will result in the rules in Quebec, once again, being
different from those in other provinces, leaving national plan sponsors to deal with the dilemmas
potentially created by Bill 102.
Paul Litner is a partner in the pension and benefits department at Osler, Hoskin & Harcourt in Toronto.
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