PIAC warns of ‘unintended consequences’ of Quebec’s proposed disparity rules

Quebec’s move to eliminate so-called disparities in pension plans will have unintended consequences, according to the Pension Investment Association of Canada.

“In particular, we think that it will lead to an acceleration of the closing of defined benefit pension plans and will hamper the ability of Quebec-based employers to offer and/or negotiate total compensation packages that are tailored to a changing workforce,” wrote associate chair Brenda King in a letter to the province’s Ministry of Labour, Employment and Social Solidarity.

Read: Quebec employers concerned about province’s plan to eliminate pension disparities

Bill 176 proposes prohibiting Quebec companies from offering two different types of plans to their employees based on their date of hire. If it becomes law, employers that are considering closing their defined benefit plans to new employees and moving them into a new defined contribution arrangement will instead opt to move all employees into a defined contribution plan.

“This will accelerate the decline of DB plan coverage in the Quebec private sector and disproportionately impact older employees with the most years of service under the DB plan,” noted King in the letter.

The Pension Investment Association of Canada also believes determining that a change to a particular benefit creates disparity among employees doesn’t appropriately consider other forms of compensation and benefits. As well, it believes the underlying premise of Bill 176 is the notion that defined benefit plans are invariably superior to defined contribution plans.

“We note that DC features such as portability, flexibility and control are valued by many employees, in particular younger employees, and it is not straightforward to place a value on these features relative to DB plan design features,” stated the letter. “Identifying the superior option between a DB and DC plan may be a relatively complex question, and may be a matter of a given employee’s perspective.

“Overall, we believe that Bill 176 could negatively impact an employer’s ability to make these judgements and adjust compensation packages over time to align with changes to its workforce.”

Read: Plan sponsor tools for closing the pension generation gap