Amendments reducing benefits
As the employer, you can decided on the amendments to be made to the plan text, provided the plan text empowers you
to do so. You can then decide to no longer offer certain rights, privileges or benefits to the members and
beneficiaries. However, certain rules apply and the amendments cannot have retroactive effect except in certain
specific situations.
Amendments concerned
The amendments reducing benefits concerned are those that:
eliminate a refund or a benefit
For example: eliminating of entitlement to a
bridging pension.
limit eligibility for a refund or a benefit
For example: restricting entitlement to a disability pension for members hired before
1 January 2012.
reduce the amount or value of the benefits of members and beneficiaries.
For example:
- reducing a pension from 2% of earnings to 1,5% of earnings per year of service
- ceasing to
index pensions
- reducing the employer contribution from 5% to 4% of earnings for a defined contribution plan.
The reductions are determined on an
individual basis.
Effective date of the amendments concerned
The amendments reducing benefits concerned cannot take effect:
- prior to the effective date of the collective agreement (or the arbitration award or decree) establishing the
amendment, with respect to the members affected by the collective agreement
- in other cases, before the date the written notice setting out the objective of the amendment is sent to
the members.
Amendments pertaining to the normal pension
Amendments pertaining to the normal pension, the method used for calculating such a pension or any other
benefit established on the basis of that pension or method
may apply only to service that is subsequent to the effective date.
Two helpful examples...
Example 1: You amend the plan for the union members so that it limits eligibility for an
unreduced early pension. The collective agreement establishing the amendment for the affected members takes
effect on 30 June 2012. The amendment to the plan can only apply to service after
30 June 2012.
Example 2: You want to amend the text of your employees' pension plan, which is a
defined-benefit plan where pensions are determined by a final pay formula, by reducing the normal pension from
2% to 1.5% of earnings. The notice of change was sent to the members on 30 September 2012. The
amendment can only apply to service after that date. Therefore, a member who was active from 2006 to 2020
and whose average final pay is $56 000 will be entitled to a deferred pension equal
to $14 490 (2% × $56 000 × 6.75 + 1.5% × $56 000 × 8.25).
Exceptions – allowable retroactive period
An amendment reducing benefits can have effect before the date on which the notice is sent or the effective
date of the collective agreement, as the case may be, in the following three situations:
- Its purpose is to bring the plan into conformity with tax rules.
- Its purpose is the withdrawal of an employer that has declared bankruptcy, and we have
given our authorization.
- In this case, the withdrawal must take effect on the date of the bankruptcy even if it reduces the
benefits of the members before the date on which the notice informing them of the withdrawal
is sent.
-
All
affected members and beneficiaries have consented to the amendment, and we have
given our authorization.
Worth knowing about...
These three exceptions do not apply, however, if payment of the pension has already begun.
Thus, it is never possible to amend a plan to reduce the amount or value of a pension that is already in
payment on the date the notice is sent or the date on which the collective agreement takes effect, as the
case may be.
Reductions and plan funding (defined
benefit plans)
Only contributions that become due after the actuarial valuation report has been
submitted can be reduced to take into account an amendment (authorized and registered) that reduces benefits
retroactively. Even if the amendment is authorized and registered, thereby reducing the plan's costs, any
outstanding contributions that had not been paid into the pension fund at the time the report was submitted must,
nevertheless, be paid in full with interest. If the plan is terminated, the contributions must be taken into account
when the employer's debt is calculated, even if the plan is solvent at the time it is terminated.
Legal references
Supplemental Pension Plans Act (sections 19, 20,
21, 198, 199, 228 and 229)
See also