Quebec Pension Plan Enhancements: Increased Employer Contributions in Sight
On November 2, 2017, Quebec’s Minister of Finance, Carlos Leitão, tabled Bill 149, An Act to enhance the Québec Pension Plan and to amend various retirement-related legislative provisions (Bill), which aims to strengthen the financial security of employees who will retire in the coming years and harmonize the Quebec Pension Plan (QPP) with the Canada Pension Plan.
IMPLEMENTATION OF TWO PLANS WITHIN THE QPP
The Bill will modify the Act respecting the Québec Pension Plan by creating two plans: a basic plan retaining the current system, which came into force in 1966, and an additional plan that will be implemented in two parts, each increasing QPP contributions.
The additional plan will come into effect on January 1, 2019, when a first additional contribution, shared equally between the employer and the employee, will be implemented. Such additional contribution will progressively increase until 2023, when it will reach a rate of two per cent of contributory earnings, in addition to contributions to the basic plan. Specifically, the first additional contribution will be 0.30 per cent for 2019, and will increase to 0.60 per cent for 2020, one per cent for 2021, 1.50 per cent for 2022 and two per cent for 2023. Thereafter, the rate of the first additional contribution will be established on the basis of an actuarial analysis.
On January 1, 2024, the second part of the additional plan will come into effect and a second additional contribution will be imposed. In 2024, for employees whose eligible earnings are between the equivalent of C$55,300 and C$59,100 in 2017 dollars, a second additional contribution will apply in an amount equal to eight per cent (split equally between the employee and the employer) of the lesser of (i) the portion of the salary paid by the employer that exceeds the employee’s maximum eligible earnings for the year in question; and (ii) an amount calculated, among others, on the basis of the employee’s additional maximum contributory earnings for the year and the amount of any contributions paid during the year in respect of a similar plan. Thereafter, for employees whose eligible earnings are between the equivalent of C$55,300 and C$63,000 in 2017 dollars, the second additional contribution will be at a rate of eight per cent on the same amount described above, split equally between the employee and the employer.
Over time, the additional plan will increase the retirement pension payable, as the rate of income replacement obtained from the QPP will increase from 25 per cent to 33.33 per cent of the maximum eligible earnings.
The Bill will modify the Act respecting Retraite Québec to provide for two investment policies for the QPP for the basic plan and additional plan amounts.
Furthermore, the Bill will also modify the Supplemental Pension Plans Act to allow pension plans to set priorities for the appropriation of surplus assets that are different from those established under that act, and make additional changes to the establishment of the level of surplus assets used.
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