Pension Plans for Municipal Employees – Bill 3

On June 12, 2014, the Minister of Municipal Affairs and Land Occupancy, Pierre Moreau, tabled Bill 3, entitled An Act to foster the financial health and sustainability of municipal defined benefit pension plans.

Bill 3 comes on the heels of former Bill 79, entitled An Act to provide for the restructuring of and make other amendments to municipal defined benefit plans, which died on the order paper when the last provincial election was called. Bill 3 incorporates the main elements of Bill 79 with some modifications.

Impact of the restructuring 

The new draft legislation, which applies to 170 pension plans covering some 50,000 retirees and 122,000 active members, provides that defined benefit pension plans for municipal employees are to be restructured in order to improve their financial health and ensure their sustainability. Whereas Bill 79 compelled the restructuring of only some defined benefit plans (those that were less than 85% funded on December 31, 2013 and those that offered subsidies for taking early retirement, i.e. before age 55), Bill 3 mandates the restructuring of any defined benefit pension plan constituted under the Supplemental Pension Plans Act¹ and established by a municipality. 

Thus, such pension plans must, under Bill 3, be amended so as to provide that as of January 1, 2014 the current service contribution is to be shared equally between the municipality and the active members, and a stabilization fund funded by a stabilization contribution be established. The sum of the current service contribution and the stabilization contribution must not exceed 18% of the overall payroll of the plan’s active members (20% in the case of police officers and firefighters). 

Bill 3 also provides that a complete actuarial valuation must be done for each plan, on the basis of the financial information available as at December 31, 2013. The council of the municipality must then hold a session, no later than January 19, 2015, at which a report will be tabled on the financial situation of each of the pension plans the municipality has established, based on the conclusions of the actuarial valuation. 

In the event that a pension plan is in a deficit situation as at December 31, 2013, the indexation of the pensions of retired members may be suspended if the municipality so decides, and the active members and the municipality will assume in equal shares the deficiencies attributable to them for service accumulated prior to January 1, 2014 (unless they agree to share the deficiencies 60%/40% in favour of the active members, provided other elements of the overall remuneration are amended). Any new deficiency attributable to the active members in relation to service prior to January 1, 2014 and identified in an actuarial valuation subsequent to December 31, 2013 will however be borne solely by the municipality. 

Implementation conditions 

While no pension plan may provide for the automatic indexation of pensions (subject to the indexation of the pensions of members who were retired as at December 31, 2013) an ad hoc indexation may be provided for in the event that a surplus is identified in an actuarial valuation subsequent to that of December 31, 2013. In addition, a pension plan may provide, with respect to active members, for the amendment, suspension, abolition or restoration of any benefits as of January 1, 2014 (other than the normal pension and the surviving spouse’s pension). 

The plan must however provide that any additional obligation resulting from an amendment to the plan must be paid in full on the day following the date of the actuarial valuation establishing the value of the additional obligation. If the plan has surplus assets, they may be allocated to the payment of any additional obligation but they cannot be allocated to the payment of contributions, unless a fiscal rule so requires. 

The restructuring process 

Negotiations between municipalities and active members with a view to reaching an agreement for the amendment of their pension plan must (with some possible exceptions) be undertaken no later than February 1, 2015. 

Prior to such negotiations and no later than January 15, 2015, the municipality must send every association representing active members covered by the plan a prior written notice of at least 8 and no more than 15 days indicating the date, time and place its representatives will be ready to meet with the association’s representatives. A copy of the notice is to be sent to the Minister, failing which negotiations are deemed to have begun on February 1, 2015. 

Contrary to Bill 79, which provided that an agreement had to be reached within six months after the negotiations began, Bill 3 provides that an agreement must be reached within 12 months after the start of the negotiations, with a possible single three-month extension. And while Bill 79 provided for conciliation during six months following the negotiation period, under Bill 3 the parties can avail themselves of conciliation at any time during the negotiation period. 

Under Bill 79 the provincial labour relations board (Commission des relations du travail) settled any dispute. Bill 3, however, provides that an arbitrator is to be appointed by the parties to settle the dispute if no agreement has been reached by the end of the negotiation period. The arbitrator is to be assisted by two assessors designated by the parties. The arbitrator must render a decision within six months after the dispute is referred to him or her. 

Collective agreements 

It should be noted that the existence of a collective agreement or any other valid agreement will not preclude the application of the Act to foster the financial health and sustainability of municipal defined benefit pension plans. Also, any decision by an arbitrator that impacts the collective agreement will effectively amend it. 

Hotly disputed 

While the Union of Quebec Municipalities welcomes Bill 3, calling it realistic, responsible and sustainable, unions are highly critical of the proposed legislation, which in their view is an attack on the vested rights of retirees² and renders negotiations meaningless, and they have vowed to contest it in court if it is adopted. In view of the recent demonstrations by unionized employees of several large cities in Quebec including Montreal, Quebec City, Laval, Sherbrooke, Saguenay and Gatineau, it is safe to say that we have not heard the last of Bill 3.