Plan Division or Merger
What is a plan division or merger?
In the event of a plan division or merger, nothing is lost, nothing is created. Since a plan has assets and liabilities, they are either divided (division), or amalgamated into another plan (merger).
In the event of a plan division, what used to be a plan becomes two or more plans. Each plan resulting from a division is a continuation of the plan as it was before the division. Each plan therefore maintains a portion of the assets and liabilities of the divided plan and keeps the plan's history. Each plan remains accountable for both past and future obligations.
The merger of two or more plans does not influence the history of the plans nor their assets and obligations, except if they are grouped into a single plan. However, the merger may affect the contributions to be paid into the pension fund.
Note that
A plan division or merger involves the transfer of all or part of the assets and liabilities from one plan to another. If all or part of the active members are to simply stop accruing new benefits in a plan in order to become members of another plan, it does not constitute a division or merger.
Terminology
The following terms are used in this section.
- Amendment refers to a plan division or merger.
- Exporting plan refers to a divided plan, or to an absorbed plan in the case of a merger.
- Importing plan refers to a new plan, or to an absorbing plan in the case of a merger.
Amendments
A division or merger are amendments to a plan. The decision to divide or merge a plan must be made by the person or body who has the power to amend it (usually the employer). The amendment of each affected plan must be the subject of an application for registration. Members must be informed of the amendment and, if applicable, they must be consulted about the amendment.
Authorization by Retraite Québec
A division or merger must be authorized by Retraite Québec. The Supplemental Pension Plans Act prescribes conditions for obtaining authorization. Retraite Québec can, in certain circumstances, impose other conditions relating to obtaining authorization.
Processing a plan division or merger in annual information returns
This section provides special instructions related to the production of annual information returns (AIR) for exporting and importing plans affected by a plan division or merger.
The instructions concern the AIR that must be produced on the effective date of the amendment, if the effective date corresponds to the plan's fiscal year end date, or later.
The effects of a plan division or merger must be shown in AIRs for exporting and importing plans, and the amount to be transferred to the importing plan must be indicated in the return as soon as it is known. This results from the following observations:
- Regarding defined benefit plans, actuarial valuation reports sent to Retraite Québec must take into consideration any amendments made to the plan, including the division or merger of a plan, even if Retraite Québec has yet to authorize the division or merger.
- Once an actuarial valuation report has been sent to Retraite Québec, plan funding must be based on the report.
- However, the assets of the exporting plan cannot be transferred to the importing plan until the amendment has been authorized by Retraite Québec.
Note that
- In the case of a total merger, if the terms and conditions related to the transfer are not finalized on the exporting plan's fiscal year end date, the administrator must produce an AIR related to that fiscal year.
- If one of the affected plans is registered with a supervisory authority other than Retraite Québec, the AIR of the plan that is registered with Retraite Québec must be produced by following the instructions mentioned above. If the amounts of the plan's financial report differ from those entered in the AIR, the auditor must enter "No" on line 388 and explain that difference on line 389.
Membership
As of the effective date of the amendment, all members and beneficiaries of the exporting plan affected by the amendment must be considered as non-active members or beneficiaries of the exporting plan until Retraite Québec has authorized the amendment. Active members affected by the amendment, who are now accruing benefits under the importing plan, must be considered as active members of the importing plan.
| Members and beneficiaries | Exporting plan | Importing plan |
|---|
| Active members | Active members of the exporting plan affected by the amendment must be considered as members who ceased to be active for any other cause (line 7). In the case of a total merger, there will no longer be any active members at the end of the fiscal year. | Active members of the exporting plan affected by the amendment must be considered as members who joined the importing plan (line 4). |
| Active members, non-active members, and beneficiaries | Until Retraite Québec has authorized the amendment, the total number of members and beneficiaries to be registered must include the members and beneficiaries affected by the amendment (line 11). | Until Retraite Québec has authorized the amendment, the total number of members and beneficiaries to be registered must include the active members of the exporting plan affected by the amendment (line 11). Non-active members and beneficiaries of the exporting plan affected by the amendment must be included in that number only from the time Retraite Québec has authorized the amendment. |
Financial situation of the plan
As of the effective date of the amendment, all transactions carried out (for example, contributions made to the plan) must be taken into consideration in the AIR of the respective plans based on the proposed amendment, even if Retraite Québec has not authorized it yet. There are exceptions to this rule. The expenses and investment income, including the variation in the fair value of the investments, related to the assets transferable to the importing plan as well as certain administration expenses, must be taken into account in the AIR of the exporting plan as long as the transfer of the assets has not been carried out.
The amount transferable to the importing plan, calculated as at the effective date of the amendment, must be included in the AIR of the affected plans as soon as it is known. If it is not known at the time of initial production of the AIR, the amount must be taken into consideration no later than in the first AIR following the effective date of the amendment.
As long as the transfer of assets has not been carried out, the subsequent AIRs must present the net effect of income and expenses on the assets to be transferred from the exporting plan to the importing plan. The amount corresponding to a positive net effect must be indicated on lines 311 to 313, "Other sources of increase", whereas the amount corresponding to a negative net effect must be indicated on lines 326 to 328, "Other sources of decrease". The following wording must be used: "Adjustment to transferable assets – division/merger".
The following two tables show the main effects of the amendment.
| Sources of increase and decrease in net assets | Exporting plan | Importing plan |
|---|
| Assets transferable to the importing plan under the amendment | The amount to be entered is the amount determined as at the effective date of the amendment. The amount must be indicated as a transfer to a supplemental pension plan (line 322). The operations after the effective date of the amendment will be presented according to their nature (contribution, refund, etc.) in the importing plan. Exception:
Certain operations must be presented as revenues and expenses of the exporting plan, mainly: - revenues and expenses related to investments, until the date of the transfer, because the investments are still part of the exporting plan
- a portion of the auditor's fees, which could be credited to the importing plan.
Those revenues and expenses will still be credited to the importing plan through an adjustment. Therefore: - if those revenues and expenses have a net positive impact on the assets to transfer, a decrease in assets will be entered (lines 326 to 328) in return for the increase in the transfer payable (line 373.1)
- if those revenues and expenses have a net negative impact on the assets to transfer, an increase in assets will be entered (lines 311 to 313) in return for the increase in the transfer payable (line 373.1).
The wording "Adjustment to transferable assets – division/merger" must be used to present the adjustment on lines 311 to 313 or lines 326 to 328. | The amount to be entered is the amount determined as at the effective date of the amendment. The amount must be indicated as a transfer from another supplemental pension plan (line 310). Transactions after the effective date of the amendment will be shown as transaction type (contribution, refund, etc.). Exception:
Certain operations must be presented as revenues and expenses of the exporting plan, mainly: - revenues and expenses related to investments, until the date of the transfer, because the investments are part of the exporting plan
- a portion of the auditor's fees, which could be credited to the importing plan.
Those revenues and expenses will still be credited to the importing plan through an adjustment. Therefore: - if those revenues and expenses have a net positive impact on the assets to transfer, an increase in assets will be entered (lines 311 to 313) in return for the increase in the receivable transfer (line 363.1)
- if those revenues and expenses have a net negative impact on the assets to transfer, a decrease in assets will be entered (lines 326 to 328) in return for tshe increase in the receivable transfer (line 363.1).
The wording "Adjustment to transferable assets – division/merger" must be used to present the adjustment on lines 311 to 313 or lines 326 to 328. |
| Contributions required before the effective date of the amendment | The amendment has no effect on the amount of these contributions. | The amendment has no effect on the amount of these contributions. |
| Contributions required as of the effective date of the amendment | - The required current service contributions are those established for the group of active members not affected by the amendment (lines 305 and 307).
- Additional voluntary contributions and optional ancillary contributions are those of active members not affected by the amendment (line 306).
- The required special contributions and amortization payments are those determined in the actuarial valuation report of the exporting plan that takes into account the amendment (line 308).
- In the case of a total merger, no contribution is required after the date of the merger since the actuarial valuation report of the importing plan takes into account the amendment.
| - The required current service contributions are those established for all active members of the importing plan, including those affected by the amendment (lines 305 and 307).
- Additional voluntary contributions and optional ancillary contributions are those of active members of the importing plan, including those affected by the amendment (line 306).
- The required special contributions and amortization payments are those determined in the actuarial valuation report of the importing plan that takes into account the amendment (line 308).
|
Variation in the fair value of investments and investment income | The amounts to be entered include the return on assets to transfer to the importing plan (line 301). An adjustment will need to be included in the exporting plan to reflect the return on investments that must be attributed to the importing plan. (See the Assets transferable to the importing plan under the amendment section) | The amounts to be entered exclude the return on the amount to receive from the exporting plan (line 301). An adjustment will need to be included in the importing plan to reflect the return on investments that must be attributed.(See the Assets transferable to the importing plan under the amendment section) |
Management and administration expenses | As of the effective date of the amendment, the amounts to be entered exclude the expenses paid on behalf of the importing plan. However, they include a portion of the expenses linked to managing investments related to the assets to transfer in the importing plan and the auditor's fees. A transfer adjustment will need to be included in the exporting plan to reflect the portion of the expenses that must be attributed to the importing plan. (See the Assets transferable to the importing plan under the amendment section). | As of the effective date of the amendment, the amounts to be entered include the expenses paid by the exporting plan on behalf of the importing plan. However, they exclude a portion of the expenses related to managing investments linked to the assets to transfer and the auditor's fees from the exporting plan, which is included as a transfer adjustement (See the Assets transferable to the importing plan under the amendment section). |
| Benefits, transfers and refunds | As of the effective date of the amendment, the amounts to be entered are those paid to members and beneficiaries not affected by the amendment (lines 320 to 323.1). The amounts paid to affected members and beneficiaries after the effective date of the amendment are considered as benefits under the importing plan. | As of the effective date of the amendment, the amounts to be entered are those paid to members and beneficiaries of the importing plan, including those affected by the amendment (lines 320 to 323.1). Even if the pensions of retirees affected by the amendment continue to be paid under the exporting plan temporarily, they are still benefits under the importing plan. |
| Assets and liabilities | Exporting plan | Importing plan |
|---|
| Assets – Accounts receivable | Contributions receivable (lines 360 to 362) are required contributions that were not cashed at the end of the fiscal year. For further details on required contributions, see the Required contributions section in the table entitled Statement of changes in the plan's net assets. | - Contributions receivable (lines 360 to 362) are required contributions that were not cashed at the end of the fiscal year. For further details on required contributions, see the Required contributions section in the table entitled Statement of changes in the plan's net assets.
- Even if, at the end of the fiscal year, the fund of the importing plan has not yet been created (for example, where the amendment would be effective one month before the end of the fiscal year), the AIR of the importing plan must show, as contributions receivable, the contributions required as of the effective date of the amendment that were not cashed at the end of the fiscal year.
Regarding AIRs after the effective date of the amendment, the new balance of assets receivable from the exporting plan must be indicated as transfers receivable. That amount must be indicated as transfers receivable to the pension fund (line 363.1). The return on investments of the plan's assets, certain management or administration expenses, as well as the contributions and benefits paid relating to affected members and beneficiaries since the date of the amendment must be taken into consideration in the new balance.
|
| Liabilities – Accounts payable | Regarding AIRs after the effective date of the amendment, the new balance of assets transfer to the importing plan must be included in the plan's liabilities. That amount must be indicated as transfers payable to another supplemental pension plan (line 373.1). The return on investments of the plan's assets, certain management or administration expenses, as well as the contributions and benefits paid relating to affected members and beneficiaries since the date of the amendment must be taken into consideration in the new balance. | |
Example
The effective date of a plan's division is 30 June 2023. The division covers a group of 30 active members and 50 non-active members and beneficiaries that will be transferred to a new plan. At the end of 2023, given that the amendment related to the division as at 30 June 2023 has not yet been authorized by Retraite Québec, the transfer of assets cannot be made. The administrator of each plan affected is preparing to produce the AIR as at 31 December 2023 for each of those plans.
For simplification purposes, the transactions not related to the amendment are not shown in the tables below.
Membership
| Overview of the AIR – Section 2.1 | Exporting plan | New plan (importing plan) |
|---|
| 4 Number of members who joined the plan or who became active again during the fiscal year | | The 30 active members affected must be considered as having joined the plan. |
| 7 Number of cessations of active membership during the fiscal year that resulted from any other cause | The 30 active members affected must be considered as having ended their active membership. | |
| 11 Number of active members, non-active members and beneficiaries at the end of the fiscal year | The 30 active members and 50 non-active members and beneficiaries affected continue to be considered as plan members and beneficiaries. | The 30 active members affected must be considered as plan members and beneficiaries. |
Financial situation of the plan
The division report indicates that assets of $1 000 000 as at 30 June 2023 must be transferred to the new plan.
Note that
That amount will be entered in the first AIR that follows the date of the plan's division, that is, at 31 December 2023.
| Overview of the AIR | Exporting plan | New plan (importing plan) |
|---|
| Entry in the Statement of changes in the plan's net assets section |
|---|
| | 310 Transfers from another supplemental pension plan | | 1 000 000 |
| 322 Transfers to a supplemental pension plan | 1 000 000 | |
| Effects on the items in the Net assets section |
|---|
| Assets | 363.1 Transfers receivable to the pension fund | | + 1 000 000 |
| Liabilities | 373.1 Transfers payable to another supplemental pension plan | + 1 000 000 | |
The contributions required from members, as well as the ones from the employer total $500 000 regarding the exporting plan. In addition to that amount, contributions totalling $50 000 continued to be paid temporarily after 30 June 2023 in the exporting plan for members of the group affected by the division.
For the new plan, the contributions required from members, as well as the ones from the employer total $110 000.
The December contributions ($25 000 regarding the exporting plan and $15 000 regarding the new plan) were paid into each of the respective plans in January 2024.
| Overview of the AIR | Exporting plan | New plan (importing plan) |
|---|
| Entry in the Statement of changes in the plan's net assets section |
|---|
| | 305 à 308.1 Contributions | 500 000 | 110 000 |
| Effects on the items in the Net assets section |
|---|
| Assets | 359 Total cash on hand and investments | + 525 000 | + 45 000 |
| 360 à 362 Contributions receivable, including interest | + 25 000 | + 15 000 |
| 363.1 Transfers receivable to the pension fund | | + 50 000 |
| Liabilities | 373.1 Transfers payable to another supplemental pension plan | + 50 000 | |
The exporting plan's total return on assets is $300 000, including $20 000 associated with the amount of $1 000 000 to be transferred to the new plan for past service.
The return on investments accrued in the new plan's pension fund as of 1 July is $2000.
| Overview of the AIR |
Exporting plan |
New plan (importing plan) |
|---|
| Entry in the Statement of changes in the plan's net assets section |
|---|
| | 301 Variation in the fair value of investements and investment income | 300 000 | 2000 |
| 311 to 313 Other sources of increase | | 20 000 |
| 326 to 328 Other sources of decrease | 20 000 | |
| Effects on the items in the Net assets section |
|---|
| Assets | 359 Total cash on hand and investments | + 300 000 | + 2000 |
| 363.1 Transfers receivable to the pension fund | | + 20 000 |
| Liabilities | 373.1 Transfers payable to another supplemental pension plan | + 20 000 | |
Expenses related to managing investments of the exporting plan are $20 000. For that amount, $4000 concern the management of investments to be transferred.
For the importing plan, the expenses total $7000.
Each plan paid its invoice.
| Overview of the AIR | Exporting plan | New plan (importing plan) |
|---|
| Entry in the Statement of changes in the plan's net assets section |
|---|
| | 316 Expenses related to managing investments | 20 000 | 1000 |
| 311 to 313 Other sources of increase | | - 4000 |
| 326 to 328 Other sources of decrease | - 4000 | |
| Effects on the items in the Net assets section |
|---|
| Assets | 359 Total cash on hand and investments | - 20 000 | - 1000 |
| 363.1 Transfers receivable to the pension fund | | - 4000 |
| Liabilities | 373.1 Transfers payable to another supplemental pension plan | - 4000 | |
The exporting plan paid benefits for a total amount of $400 000, including $40 000 paid after 30 June 2023 to members and beneficiaries of the group affected by the division.
No benefits were paid directly from the new plan's fund.
| Overview of the AIR | Exporting plan | New plan (importing plan) |
|---|
| Entry in the Statement of changes in the plan's net assets section |
|---|
| | 320 à 323.1 Pensions and transfers | 360 000 (400 000 - 40 000) | 40 000 |
| Effects on the items in the Net assets section |
|---|
| Assets | 359 Total cash on hand and investments | - 400 000 | |
| 363.1 Transfers receivable to the pension fund | | - 40 000 |
| Liabilities | 373.1 Transfers payable to another supplemental pension plans | - 40 000 | |
| Overview of the AIR | References to transactions | Exporting plan | New plan (importing plan) |
|---|
| 359 Total cash on hand and investments | Contributions (cashed) | + 525 000 | + 45 000 |
| Return of plan assets | + 300 000 | + 2000 |
| Expenses related to managing investments | - 20 000 | - 1000 |
| Benefits, transfers and refunds | - 400 000 | 0 |
| Total | 405 000 (A) | 46 000 (A) |
| 360 to 362 Contributions receivable, including interest | Contributions (not cashed) | 25 000 (A) | 15 000 (A) |
363.1 Transfers receivable to the pension fund (for the new plan) 373.1 Transfers payable to another supplemental pension plan (for the exporting plan) | Transferable assets | + 1 000 000 | + 1 000 000 |
| Contributions (deposited in the exporting plan) | + 50 000 | + 50 000 |
| Expenses related to managing investments | - 4000 | - 4000 |
| Benefits, transfers and refunds | - 40 000 | - 40 000 |
| Total | 1 026 000 (L) | 1 026 000 (A) |
| Summary of the example on net assets |
|---|
| 331 Change in net assets | Effects of all transactions related to the plan's division | - 596 000 (425 000 + 25 000 - 1 030 000) | 1 087 000 (47 000 + 15 000 + 1 030 000) |
Retraite Québec authorized the division on 28 February 2020, and the plan administrator transferred the assets in the new plan on 15 April 2020.
Certain transactions have an impact on the balance of the transfer payable by the exporting plan to the new plan:
| Overview of the AIR | References to transactions | Exporting plan | New plan (importing plan) |
|---|
| Entry in the Statement of changes in the plan's net assets section |
|---|
311 to 313 Other sources of increase in assets (for the new plan) 326 to 328 Other sources of decrease in assets (for the exporting plan) | Return of plan assets | + 5000 | + 5000 |
| Expenses related to managing investments | - 1000 | - 1000 |
| Benefits, transfers and refunds | - 2000 | - 2000 |
| Total | 2000 | 2000 |
The wording "Adjustment to transferable assets – division/merger" must be used. Certain lines in the AIR do not allow the entry of negative amounts. If the total of the adjustement to the balance of the transfer payable following a division or merger is negative, the amount will need to be entered on lines 311 to 313 in the case of exporting plan and on lines 326 to 328 in the case of the new plan. |
References
Legal references
However, the version prior to 1 January 2016 of sections 194 to 197 of the Supplemental Pension Plans Act applies to the division or merger:
- of a municipal sector pension plan (in French only) covered by the Act to foster the financial health and sustainability of municipal defined benefit pension plans.
- of a university-sector pension plan covered by the Act respecting the restructuring of university-sector defined benefit pension plans.
Other references