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Benefits and Pensions MonitorBill 30: Québec Revises Its Supplemental Pension Plans Act Even though these provisions will come into force in 2010, they already create discomfort for parties involved in the administration of pension plans. Employers are expected to face additional constraints when deciding on modifications to a pension plan. In a unionized context, it will be very difficult, if not impossible, to negotiate amendments to a pension plan funded from surplus assets when members are represented by different associations of employees, where there are both unionized and non-unionized members in the plan, or when many retirees receive benefits under the plan. As the modifications are deemed not to comply with legal requirements if 30 per cent or more of the members of each different group oppose it, then the agreement reached with the union could be affected further to the sending of the required notices. These new provisions also put the pension committee in a somewhat uncomfortable position. If more than 30 per cent of the members of a specific group oppose the amendment, it will be deemed not to comply with applicable legal requirements. However, the pension committee cannot change the amendment and it has, under the SPPA, an obligation to file modifications brought to the plan by the employer. The pension plan must also administer the plan in accordance with the law. Unless the SPPA is further revised, a pension committee will face an interesting dilemma if 30 per cent or more of a group of members oppose an amendment as it will have to either file an amendment that is not in compliance with the requirements of the SPPA or not fulfill one of its obligations under the SPPA. Administration Of Pension Plans Bill 30 also imposes additional obligations for pension committees. Each committee must establish an internal by-law providing rules pertaining to its workings and governance before December 13, 2007. The list of topics to be covered by the internal by-laws is found at Section 151.2 of the SPPA and includes:
We note that the new wording of Section 151.2 of the SPPA allows the pension committee to modify effectively the text of the pension plan in relation to its operation and governance. Even though such encroachment to the usually exclusive power of the employer to modify a pension plan may appear to be minor, it constitutes a disturbing precedent. Section 150.1 of the SPPA now provides that the pension committee chooses and retains the services of the delegates, representatives, and service providers. It appears to be the legislature’s intent to make the pension committee the party ultimately responsible for the choice of service providers. Legal Responsibility Bill 30 includes several provisions seeking to protect members of a pension committee from potential lawsuits. Legal recourses filed recently against members of pension committees in Québec made it increasingly difficult to recruit persons to sit on such pension committees. The solution chosen by the legislature was to transfer liability to other parties involved in the administration of pension plans and to limit such persons’ ability to exclude their legal responsibility. Section 151.1 of the SPPA, as modified by Bill 30, provides for the transfer of the pension committee’s liability where it acted in good faith on the basis of an expert’s opinion. Under such circumstances, the pension committee is presumed to have acted with prudence and the legal liability for the decision taken could very well rest with the expert who provided the opinion on which the pension committee relied. Bill 30 also adds a paragraph to Section 153 of the SPPA that clearly imposes the fiduciary obligation to service providers and representatives who exercise a discretionary power of the pension committee. We expect that delegation of powers and service agreements will be drafted in a more precise manner in order to clearly determine which obligations are taken over by this service provider and representative. This will be necessary in order to decide which standards of care will apply to the service providers and representatives when providing specific services to a pension committee. Bill 30 contains provisions that prohibit the use of clauses limiting the liability of service providers. The scope of this provision is quite broad and affects not only contracts to be negotiated, but also existing and expired ones. We note that the scope of the prohibition is broad enough to include both classic clauses limiting or excluding a service provider’s liability, as well as indemnification provisions. It can, however, be argued that indemnifications not affecting the pension plan’s assets, such as indemnifications given by the plan’s sponsor, would not fall within the scope of Section 154.4 of the SPPA and could, accordingly, be valid. Service Provider’s Liability Section 154.4 of the SPPA provides that, for existing or expired contracts, clauses limiting or excluding a service provider’s liability may be declared null and void if abusive. In order to determine whether any such clause is abusive, the SPPA refers to the clauses of the Québec Civil Code in relation to consumer contracts and contracts of adhesion. As such rules are intended to protect the consumer or party who is assumed to have had no possibility to negotiate the terms of the contract it entered into, it will be very interesting to see how the courts will apply these rules in the context of the administration of a pension plan. Even though we think that it will be possible for service providers to justify the reasonable nature of a clause limiting or excluding their liability, we fear that the standard of review to be used by the court may be difficult to meet. Bill 30 renders the administration of DB pension plans even more demanding and, over time, more costly. Over and above the financial burden imposed on plan sponsors by the economic environment, they will also have to bear additional costs in relation to Bill 30. Such costs are caused by both the additional funding requirements that will come into force in 2010, as well as from the additional requirements in relation to the plan’s administration.
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Natalie Bussière is with Blake, Cassels & Graydon LLP in Montreal