Implementation of Variable Payment Life Pensions

On May 28, the Quebec government released the draft Regulation to amend the Regulation respecting supplemental pension plans  to provide for the rules governing the establishment of Variable Payment Life Pensions (VPLP) or Variable Payment Life Annuity (VPLA) funds under defined contribution (DC) plans.

As mentioned in our November 19, 2024 newsletter, VPLPs aim to offer a lifetime pension to DC plan members, with the payment amount varying over time based on the fund’s investment returns and the mortality experience of the beneficiaries.

The draft regulation aims to clarify the application of this new method of disbursement.

This is an additional innovation for DC plan members, complementing the variable benefits already implemented in many such plans.

Key elements of the draft regulation

Establishing and adjusting the VPLP amount

To determine the initial amount of the variable payment life pension, the capital transferred is divided by a pension factor that considers the individual's age and gender on the date of transfer as well as mortality assumptions, pension options, and the reference rate elected for the pension.

The pension is then adjusted:

• to consider the VPLP fund’s previous financial year’s performance. Thus, returns higher than the reference rate would increase pension payments;
• to consider mortality experience, at most every three years. Consequently, when there are more deaths than those anticipated by the assumption, this will have the effect of increasing the pension of the surviving beneficiaries; 
• if the actuary changes the mortality assumptions. The percentage of adjustment must be the same for all the beneficiaries of the fund

The pension amounts in payment must be adjusted no later than the seventh month following the end of the fiscal year.

Registration and Adjustments

Mortality assumptions must be provided to Retraite Québec when registering a plan that will include an VPLP fund or when amending a plan to add such a fund.

Mortality assumptions can be revised at a later date.

Pension Adjustment Report

A pension adjustment report must be filed with Retraite Québec:

• at least every three years;
• if there is a change in the mortality assumptions;
• in the event pensions are adjusted when the mortality experience is shared across funds;
• when Retraite Québec requires it.

The detailed content of this report is outlined in the draft regulation.

The report must be filed within six months of the end of the fiscal year.

VPLP fund provisions

The Plan Text must specify for each VPLP fund:

• the age of the member or spouse and the conditions of entitlement, if applicable, for obtaining a VPLP;
• reference rate;
• payment frequency; and
• death benefit options.

The following clarifications are made in respect to the elements above:

• members or spouses aged 55+ must have access to at least one VPLP fund;
• it is possible to provide for a minimum or maximum amount of capital which can be converted into a VPLP;
• the reference rate used to calculate and adjust the pension cannot be changed after payment begins;
• payments must be monthly unless the plan provides for more frequent payments.

Transfers between VPLP funds within the same DC plan are permitted, provided mortality assumptions and mortality experience are shared amongst funds.

Member and beneficiary communications

The draft regulation sets out communications intended to members:

• VPLP must be addressed in the plan summary;
• an estimate statement must be provided to a member or spouse who requests a VPLP ;
• a notice of payment must be communicated;
• an annual statement must be sent to the beneficiary of the VPLP at least 30 days before the adjusted pension payment.

The draft regulation details the contents of these documents. It also highlights that the pension adjustment report may be consulted. It should be added that the VPLP fund will have to be addressed at the annual meeting.

Termination of a VPLP fund

A VPLP fund must be wound-up if it has fewer than 10 beneficiaries. Retraite Québec may order the wind-up. Members must be notified within the time limits specified in the draft regulation.

A report and benefit entitlement statements must be produced following the wind-up of the VPLP. The content of these documents is specified in the draft regulation.

Each beneficiary is entitled to a share of the VPLP fund’s assets proportionate to their liability within the fund.

Payment options include: 

• receiving an annuity purchased from an insurer chosen by the pension committee. The characteristics of the variable payment life pension that was being paid are maintained (default option);
• transferring their share of the fund's assets into a retirement plan referred to in section 98 of the Act (which includes the plan member's account in the event that the VPLP fund is wound up without the plan being terminated). This will, most of the time, involve a transfer into a locked-in retirement account (LIRA) and ultimately into a Life Income Fund (LIF).

Transfer, partition and seizure of benefits

The draft regulation specifies the adjustments to the rules applicable in the event of transfer of benefits, partition and seizure to take into account the benefits that a member in a plan could have under an VPLP fund.

Applicable fees for all pension plans

The draft regulation also revises certain fees payable to Retraite Québec. For example, the fee for locating untraceable members increases from $20 to $30 and will be indexed annually from December 31, 2026.

Note: VPLPs are also available for simplified pension plans (SIPPs). Similarly, a separate draft regulation has been proposed to govern their implementation in voluntary retirement savings plans (VRSPs). This draft regulation also harmonizes the rules for withdrawing variable benefits from a VRSP with those already in effect since January 1, 2025, for DC plans and life income funds (LIFs).