It is still too soon to offer an informed and complete assessment of the negative effects that the COVID-19 crisis will have on pension plans in Québec. The dramatic decline of stock markets and the corresponding drop in the value of pension plan assets over the past few weeks no doubt will be at the top of the list of concerns of plan sponsors and administrators and participating employees.
During the 2008-2009 financial crisis, the Québec government intervened to lessen the heavy financial burden that fell upon defined benefit pension plans. In order to allow the sponsors and administrators of such plans to better navigate the troubled waters of a collapsing economy, a regulation gave special contribution relief by allowing the amortization of solvency deficits over 10 years (instead of five) and permitted the valuation of assets in a manner to increase the positive column of the balance sheet. On that occasion, the lawmakers also introduced a process by which Retraite Québec (then known as the "Régie des rentes") could take over the final administration of a pension plan to protect the rights of participants against the immediate reduction of their pensions due to inadequate assets.
The 2008-2009 financial crisis now appears distant since COVID-19 has knocked on our doors. New crisis, new challenges.
Certain changes already made in 2016 may be able to soften the blow. In fact, since the reform instituted by Bill 57, employers no longer have to finance solvency deficits, Solvency deficits in a time of crisis are likely to be the source of a sudden rise in liabilities because they are calculated on the basis of asset liquidation. However, the 2016 reform limits the tools now available to the government, which may be called upon even more for innovative solutions, depending on how the COVID-19 crisis evolves.
For the time being, the Government of Québec, in a press release issued on April 16, 2020 by Retraite Québec, announced administrative measures that postpone certain deadlines that plan administrators must regularly meet. These measures resemble other measures already adopted by Québec, notably with regard to taxes.
Accordingly, the deadlines for sending annual statements to participants and beneficiaries, the filing of triennal actuarial valuations, the filing of the annual information and financial reports, the notice of the annual meeting and the advice on the financial situation of the plan have been extended from September 30, 2020 to December 31, 2020. The deadline for submitting the annual statement and financial report for simplified pension plans (SPP) has been postponed from June 30, 2020 to September 30, 2020.
Actuarial valuations for annuity purchases, recovery plans for a negotiated contribution plans and actuarial termination reports have been given three additional months past the current deadline.
Besides these temporary measures to assist the management of pension plans, it is relevant to note that according to the current rules, certain plan sponsors could order their three-year actuarial reports as of December 31, 2019. By doing so, future plan funding would be based on the values as they existed at the end of last year, when the markets had not yet begun their decline.
Included in the press release is at least one more substantial element. Since 2016 and Bill 57, plan administrators cannot, in most cases, pay the transfer value to eligible participants beyond the degree of solvency of the plan. In fact, it is one of the rare instances where a solvency deficit still plays a role. However, this solvency level must normally be determined as of the date of the last date actuarial report filed with Retraite Québec. From now on, to take into account the depreciation in value resulting from the crisis, the government intends to limit the values that can be transferred outside the plan even more. For the period from April 17, 2020 to December 31, 2020, transfers must be made based on the level of solvency as estimated on the last business day of the previous month. In this way, the plans are protected against additional erosion resulting from the current economic situation.
The COVID-19 crisis has not yet reached its peak: we will have to follow the next developments to see how to meet the next challenges.
