TORONTO (Reuters) - The Quebec government is taking the unprecedented move of guaranteeing benefits to pensioners and workers of companies whose plans go bankrupt, the Globe and Mail newspaper reported on Thursday.
The move comes as the global financial crisis jeopardizes the future of private pension plans at many companies. Nearly a million workers and pensioners in Quebec are registered in more than 950 private company pension plans with assets worth about C$100-billion, the report said.
A handful of those pension plans could become insolvent this year if the companies declare bankruptcy, Quebec Employment Minister Sam Hamad said on Wednesday, according to the report.
The newspaper said that under a bill presented yesterday, the Quebec Pension Plan (QPP) will take over the management of insolvent pension plans and guarantee retirement income for five years to those who are entitled.
If this proves successful, the measure could be extended beyond the five years and perhaps become permanent, the article said, citing a senior government official. It added that the fund could also be transferred to an insurance company.
All opposition parties and Quebec’s major business and labor leaders support the bill which is expected to be adopted on Thursday and will be retroactive to December 31, 2008, the article said.
It said the legislation gives the QPP the authority to improve benefits to workers if needed, and if the targeted pension plans have insufficient assets to cover benefits, the government will pay the required sums to make them solvent.
Quebec companies will have 10 years rather than five years to replenish shortfalls in their pension plans, the report said, noting that the market value of the assets of Quebec’s private pension plans is now 70 per cent of their total solvency liabilities, or what they need to pay out in benefits.
The article said this represents a C$22-billion ($17.6 billion) shortfall to bring solvency levels up to 100 per cent, and many cash-strapped companies face serious problems in meeting their pension contribution obligations.
Reporting by Jeffrey Hodgson