Will Bill 79 Dealing with the Restructuring of Municipal Pension Plans Survive the Coming Election?

On February 20, 2014, just days before the triggering of a provincial election campaign, Ms. Agnès Maltais, Quebec’s Minister of Employment and Social Solidarity and Minister of Labour, tabled Bill 79 entitled An Act to provide for the restructuring of and make other amendments to municipal defined benefit plans, which is aimed at putting municipal pension plans on a sounder financial footing and ensuring their stability.

Bill 79 follows on the heels of the D’Amours Report on the future of Quebec’s pension system¹ which recommended, inter alia, such amendments to municipal pension plans as are contemplated in the bill.

Municipalities affected

Under Bill 79, a pension plan established by a municipal body that is less than 85% funded as at December 31, 2013 or that provides for a subsidy for early retirement before age 55 must be restructured. Currently, some 110 of the 170 existing municipal pension plans, including those of Quebec City and Montreal, are directly affected by the bill.

Municipalities and other municipal bodies whose pension plans are sufficiently funded may, if they so choose and with the approval of the plan’s active members, voluntarily engage in the restructuring process.

The restructuring process

The restructuring process is initiated by the municipal body sending a statement to the Minister of Labour indicating that the municipal body is restructuring under the legislation. The statement must be sent to the Minister by July 1, 2014 and be based on an actuarial valuation as at December 31, 2013.

Subsequently, negotiations aimed at reaching an agreement between the municipal body and the active members of the plan are to be undertaken and completed within six months. If no agreement is reached within that timeframe, there will then be a six-month period of conciliation.

If no agreement is reached following that process, the labour relations board (the Commission des relations du travail) must settle the dispute within the next six months. To assist it in doing so, the board must ask the pension regulator (the Régie des rentes) for an opinion on the compliance of the proposed agreement with the bill’s provisions. The board may also mandate someone who is competent in municipal finance matters to assist it in evaluating the ability of municipal taxpayers to pay for the benefits being proposed.

Certain measures will be negotiated

In the course of the restructuring process, any negotiated amendment must serve to improve the financial footing of the pension plan and ensure its stability. While some measures must be negotiated, others can be negotiated at the discretion of the parties.

The municipal body and the plan’s active members must negotiate certain measures specified in the bill, including achieving a minimum funding level of 85% and abolishing any subsidies for early retirement before age 55.

In addition, the parties may negotiate aspects such as cost-sharing of past deficits, amending or abolishing any benefit provided for in the plan except for the normal pension payable, etc. However, the parties cannot agree to reduce pensions already vested in retirees or beneficiaries, except that indexing may be eliminated, but only under certain conditions.

Finally, any additional obligation arising from a negotiated amendment to the pension plan must be fully funded.

Other measures will be mandatory

Pension plans that are not subject to the restructuring process must nonetheless be amended in order to provide for equal cost sharing for current service and to abolish the additional pension benefit provided for in section 60.1 of the Supplemental Pension Plans Act².

In addition, all pension plans, whether or not subject to the restructuring process, must be amended in order to establish a provision to protect the plan from adverse variations likely to harm its future financial position. The provision may consist of a reserve or a stabilization fund.

The future

With the triggering of the recent provincial election campaign, Bill 79 died on the order paper. It remains to be seen whether it will be resuscitated by the next government. 

In the event that it is, there will doubtless be many questions to resolve concerning the implementation of this restructuring process.