Quebec municipal defined benefit plans will change to a shared-risk structure from a final-salary pension framework under legislation approved Thursday by the province’s National Assembly.

Retroactive to Jan. 1, 2014, workers will contribute more to ease past and future plan deficits. Originally, the bill required workers and employers to pay an equal share, but an amendment approved with the final bill will allow employers through negotiations with workers to lower employees’ share of the payments toward the deficit to a range of 45% to 50%. However, the bill enforces a 50%-50% split if no agreement is reached.

The bill also creates a stabilization fund to tap in case of future funding problems and allows cost-of-living adjustments pegged to inflation to be suspended for retirees if plans have a funding deficit, but an amendment will allow for some indexing to be added retroactively in the event of a surplus.

The change is geared toward reducing a combined pension deficit that government and other estimates place around C$3.3 billion (US$2.9 billion), and would standardize pension benefits across all municipal plans.

Quebec’s passage of the shared-risk bill could signal the consideration or adoption of similar bills in other provinces, said Julien Ranger, associate, pensions and benefits, at the law firm Osler, Hoskin & Harcourt. “Quebec is one of the most left-leaning provinces in Canada,” Mr. Ranger said. “The fact they adopted what some would call a more ‘right-wing’ policy indicates that change is coming elsewhere in Canada. Other provinces won’t necessarily copy what Quebec did, but the shared-risk model is taking root in all the provinces.”

Source: Pensions & Investments