In recent months, considerable discussion was centered on the future of Québec’s retirement system. First, on November 2, 2017, the Québec government introduced Bill 149 to enhance the Québec Pension Plan (QPP).
Then, the release of the Fortin report on the disparity in treatment clauses (“orphan clauses”), based on date of hire, in pension plans and group insurance programs led to another public debate: should orphan clauses be prohibited in Québec to protect younger generations, in addition to the effects of the announced QPP enhancement?
On January 11, 2018, Mercer hosted a roundtable to gather feedback from employers on the matter, which can be summarized as follows:
More details on each of these points are provided below.
According to the commonly accepted interpretation, an orphan clause consists in offering less advantageous work conditions to employees based solely on their date of hire. Such clauses have been introduced into many pension plans, but are rarely seen in group insurance programs.
All the participants at our roundtable felt it is necessary to differentiate this type of change from other changes made in the past and that should not be considered orphan clauses, such as:
Since the introduction of generous defined benefit plans in the 1970s and 1980s, the economic and demographic realities have changed dramatically, pushing employers to reassess their programs and adapt them to the new realities.
At the same time, employers do not want to introduce changes at the expense of their current workers, for whom they wish to respect the promises made at the time they were hired. Many of these employees are nearing retirement and a change to their programs can seriously impact their financial planning. To avoid affecting these employees, changes could be introduced more gradually in the organization, so as to respect the agreements already concluded with the current employees and to avoid issues related to constructive dismissals.
According to statistics compiled by Mercer, slightly more than 40% of organizations have already introduced pension plan changes based on date of hire. Many of them made the changes with the objective of offering an equivalent program, but some of them introduced a less generous plan. Each situation is unique and could involve other elements of the employees’ total rewards.
It should be noted that certain federal organizations with employees in Québec have also introduced orphan clauses in their pension plans for their new employees throughout Canada.
During our roundtable, the participants agreed that maintaining the current flexibility is unquestionably the only possible option, whether they have already introduced changes or not.
A large consensus exists among employers. Being able to implement different employee benefit programs for the new generations of workers offers needed flexibility. Prohibiting orphan clauses would have adverse consequences for them and their employees. Older employees might be forced to migrate to a defined contribution pension plan a few years before their retirement. Younger employees will gain nothing as they will be offered defined contribution plans in any case.
Employers are currently facing a number of cost and workforce management issues. QPP contributions will be increasing over seven years, payroll taxes are by far higher in Québec than elsewhere in Canada, labour standards are changing in Québec and Ontario, the rise in group insurance costs is out of control and the minimum wage is increasing faster than it did in the past. On top of these concerns, employers do not want to have to reopen issues that have already been settled, such as those related to pension plans and employee benefits. In many cases, these matters have already been settled in a responsible manner that respects promises already made. National employers do not want to have to treat their employees in Québec differently from their other Canadian workers.
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