A supplemental pension plan, often called a pension plan or pension fund, is a contract between an employer and participating employees by which both parties are required to contribute to the plan. The contributions paid into the plan, with the revenue they generate (interest), are used to provide income for participants after retirement, along with other benefits (death benefits and, in some cases, disability benefits).
In general, the plan is set up by the employer and participation is voluntary. It is administered by a pension committee. As indicated by its name, a supplemental pension plan is designed to top up the basic income received under public pension plans, such as the Québec Pension Plan and the Old Age Security Program, after retirement.
Retraite Québec supervises all supplemental pension plans subject to the Supplemental Pension Plans Act.
The plans are set up by employers whose activities are under provincial jurisdiction in the private, municipal and university sectors, along with some plans in the parapublic sector. Types of supplemental pension plans There are two types of supplemental pension plans:
Defined contribution plan In a defined contribution plan, the amount of the contribution paid by the employer and by participating employees is defined in advance according to a formula. The amount of pension benefit paid will depend on the amount of capital and interest accumulated in each participant’s account at retirement.
A simplified retirement plan is a defined contribution plan administered by a financial institution.
Defined benefit plan In a defined benefit plan, the amount of the pension is set in advance according to a specific formula. For example, the pension will be a certain percentage of the participant’s salary, or a certain amount per year of service under the plan. The employer assumes all the risks associated with the funding of the plan.
A member-funded pension plan is a defined benefit plan in which the risks associated with the funding of the plan are assumed jointly by the participants.
Supplemental pension plan administration The administrator of a pension plan must provide the plan’s participants and beneficiaries (the spouses of deceased participants) with a statement at least once a year. The administrator must also call them to an annual meeting, inform them of any changes to the plan, and provide them with a statement of cessation of membership.
Divorce or separation and partition of pension benefits The benefits accumulated in a supplemental pension plan may be partitioned following a divorce, legal separation or annulment of a marriage or civil union, or when de facto spouses stop living together.
Cessation of membership in a pension plan When an employee stops working for an employer offering a pension plan, his or her active membership ceases. The plan administrator must send the member a statement of benefits within 60 days of being informed of the cessation. The statement indicates the nature and value of the benefits as well as the amount of any refund that is payable.
Death of a pension plan participant The spouse of a participant who dies will receive a death benefit under the pension plan.
If the participant dies before retiring, the death benefit is paid as a lump sum. However, it may be paid in the form of a pension to the spouse. If the participant dies while receiving pension benefits under the plan, the spouse is entitled to a joint and survivor pension until death. The pension must be equal to 60% of the benefits received by the participant, unless the spouse has agreed to receive a lesser amount.
If the participant did not have a spouse or if the spouse renounced to the death benefit, the death benefit is paid as a lump sum to the designated beneficiary or the heirs.
Information on the payment of benefits under a pension plan or on any aspect of the plan can be obtained by contacting the pension plan administrator.
An employee is eligible to participate in a pension plan if he or she is in a category of employees covered by the plan (unionized employees, managers, etc.). The employee must also meet one of the following conditions:
Note The plan may provide for more flexible conditions, and may make participation compulsory or voluntary.
The plan may also provide for:
Supplemental Pension Plans Act, CQLR, chapter R-15.1