Quebec municipalities and unions have 12 months starting February 1 to negotiate an agreement to restructure all defined benefit pension plans in the municipal and urban transit sectors and the pension plan of Quebec municipal employees. The negotiations were mandated as part of An Act to foster the financial health and sustainability of municipal defined benefit pension plans (Bill 3) passed last December by the Quebec National Assembly.
The negotiation period can be extended by six months (two three-month periods) if necessary. The parties can use conciliation if they wish. However, if this process does not produce an agreement, arbitration is mandatory.
Prior to negotiations, pension committees also had obligations to fulfill. They were required to perform an actuarial valuation up to December 31, 2013 and submit it to the Régie des rentes du Québec (the province’s pension regulatory authority) no later than December 31, 2014. Failure to do so would result in penalties. This valuation defines the share of the deficit attributable to retirees and active workers.
Effects on active workers and retirees
The restructuring of the various plans will take effect retroactively to January 1, 2014. There will be many adverse effects on workers and retirees.
The deficit attributable to active members for years of service prior to January 1, 2014 must be shared by the employer and active members equally. Active members must pay their share by reducing their benefits or increasing their contribution (by no more than 3 per cent). If a new deficit for the years of service previous to January 1, 2014 were to appear during a subsequent actuarial valuation, the employer would assume full responsibility.
Bill 3 also calls for the elimination of all automatic indexing clauses as a first measure to scale back entitlements. The normal pension is protected and cannot be reduced, and the same applies to the accrual rate.
As for the deficit attributable to retired members on January 1, 2014, municipalities can decide to suspend indexation if they wish, effective January 1, 2017. The value of the indexation suspension cannot cover more than half of the retired members’ share of the deficit. If a subsequent actuarial valuation were to uncover a surplus, the indexation must be restored and take priority over any other right.
Deficits attributable to years of service after December 31, 2013 must be shared equally by the employer and active members. Plans must also have a stabilization fund to which parties contribute equally. The current service cost contribution is capped at 18 per cent of payroll. This cap can be increased by 0.5 per cent if the majority of active members are women. If the average age is greater than 45, the cap is increased by 0.6 per cent for each full year of deviation between the average age of the group and 45.