Quebec’s Bill 176 is a step backwards, says the Pension Investment Association of Canada. Bill 176 would prohibit companies operating in Quebec from offering two different types of pension plans to their employees based on date of hire – the elimination of so-called ‘disparity clauses.’ In a letter to the Quebec ministry of labour and employment, Brenda King, PIAC’s chair, says although the intent of Bill 176 as it relates to pensions and benefits is to eliminate disparities among employees based solely on date of hire, it believes there will be unintended consequences of the proposed legislation. In particular, it thinks that it will lead to an acceleration of the closing of defined benefit pension plans and will hamper the ability of Quebec-based employers to offer and/or negotiate total compensation packages that are tailored to a changing workforce. Cases where a company offers both a DB and a defined contribution pension plan have typically arisen because the employer made the decision to ‘soft-close’ a DB plan by continuing to allow existing employees to participate in the DB plan, but bringing new employees into a DC structure and thereby gradually shifting the workforce to a DC model over time. The alternative to a soft-close is a ‘hard-close’ whereby all employees move immediately to a DC construct. If Bill 176 were to become law, PIAC says companies that are revisiting their pension arrangements and might otherwise have considered a soft close for their plans will move to a hard-close. This will accelerate the decline of DB plan coverage in the Quebec private sector and disproportionately impact older employees with the most years of service under the DB plan. It also challenges an underlying premise of Bill 176 ‒ the notion that DB plans are invariably superior to DC plans. DC features such as portability, flexibility, and control are valued by many employees, in particular younger employees, and it is not straightforward to place a value on these features relative to DB plan design features. Identifying the superior option between a DB and DC plan may be a relatively complex question and may be a matter of a given employee’s perspective, it says.
Courtesy of Benefits and Pensions Monitor website News Alerts