The long-awaited reform of the family law provisions of the Ontario Pension Benefit Act (PBA) came into effect on January 1, 2012, and the passage of time has brought to light the challenges involving the 'new' pension division rules. In a Six-Part Pension Division Series, for those who are required to use them, Bennett Jones will simplify the not-so-new Ontario pension division rules.
Part I serves as an introduction to the rules by describing when they apply, clarifying their potential retroactive application and summarizing the regulatory forms that are prescribed under the rules and that must be implemented as part of the process of dividing a member's pension benefit on marriage breakdown.
Bill 133, the Family Statute Law Amendment Act, passed on May 14, 2009, together with the Family Law Matters Ontario Regulation 287/11, which came into force on January 1, 2012, marked the end of the “if and when” system of dividing a member's pension benefit on marriage breakdown in Ontario. Under the "if and when" system, a former spouse of a plan member had to wait until the member terminated employment or plan membership, retired, died, or reached normal retirement date under the pension plan, whichever event occurred first, prior to being able to access a share of the member’s pension benefit.
Under the new pension division reform system effective January 1, 2012, a former spouse of a plan member is entitled to receive an immediate payment of his or her share of the member’s pension benefit as a lump sum transfer or as a division of the member's monthly pension payments - depending on whether or not the member's pension was in pay on the family law valuation date (FLVD) (generally the parties' separation date). If the member was not in receipt of monthly pension payments on the FLVD, then the former spouse is entitled to a lump sum transfer of the member's pension benefit. A lump sum transfer is generally not a cash payment but is a transfer to a former spouse's locked-in retirement account (LIRA) or to another pension plan for the former spouse. If, on the other hand, the member was in receipt of monthly pension payments on the FLVD, then the former spouse is instead entitled to a division of those monthly pension payments. Therefore, while the new rules provide parties with the flexibility to access pension funds for the purposes of assisting with property equalization on marriage breakdown, this access to pension funds to a former spouse will generally be on a locked-in transfer basis or in the form of monthly pension payments and not a lump sum cash payment.
Lastly, it is important to note that under the new rules a division of a member's pension benefit is neither automatic nor mandatory and can only be implemented if the division is provided for in the terms of a domestic contract, court order or family arbitration award.
When do the New Rules Apply?
Settlement Instrument Dated On Or After January 1, 2012
If a settlement instrument (i.e., a court order, domestic contract or family arbitration award) is dated on or after January 1, 2012, then the pension division rules effective January 1, 2012, always apply. (Note that a family arbitration award is an acceptable form of settlement instrument under the PBA for purposes of dividing a member's pension benefit on and after January 1, 2012, only.)
Settlement Instrument Dated Before January 1, 2012
If a settlement instrument is dated before January 1, 2012, then the new or the old rules apply depending on the type of settlement instrument and its content. Yes, contrary to popular belief, based on the terms of both the PBA and the Ontario Family Law Act (the FLA), the new pension division rules can have a retroactive application. Here's a quick test for determining which rules apply:
If a Settlement Instrument is dated before January 1, 2012, the new rules apply unless:
- the Settlement Instrument requires an equalization payment to be made* or
- a Domestic Contract provides for a division of a pension benefit*
* A settlement instrument requires that an equalization payment be made if its terms require one spouse to pay to the other spouse an equalization payment in accordance with Section 5(1) of the FLA. A domestic contract (or more generally, a settlement instrument) provides for a division of a pension benefit if it specifies that a former spouse is entitled to either a proportion of, or a specified amount of, the member's pension benefit.
Chart Summarizing Which Rules Apply
A chart summarizing which rules apply in the case of a settlement instrument dated before 2012 and after 2012, as well as based on different settlement instrument terms, is set out below. Whether the new or the old rules apply depends on the type of settlement instrument the parties have, the date the settlement instrument was made and the specific terms of the settlement instrument in accordance with the chart below.
Click here to view the table.
The FSCO Family Law Reforms
If a former spouse is entitled to a share of a member's pension benefit on marriage breakdown, then forms released by the Financial Services Commission of Ontario (FSCO) must be used by plan administrators, members and their former spouses in order to divide the pension benefit. FSCO has also made available on its website questions and answers, as well as User Guides, on the forms and on the process of dividing a member's pension benefit.
An Application for a Family Law Value is FSCO Family Law Form No. 1 and must be completed by a member or his or her former spouse. This form serves as a request to a plan administrator to determine the value of a member's pension benefit. A Statement of Family Law Value (Form No. 4) is a form that is completed by a plan administrator, is provided to a member and former spouse and sets out the value of the member's pension benefit. There are several different FSCO Family Law Form 4s (i.e., Form 4A, 4B, 4C, 4D and 4E) depending on the member's pension benefit type that is being divided. A complete summary of all the FSCO family law forms is set out below, including information about the purpose of each form and who must complete it.
Click here to view the table.
Stay tuned for Parts II to VI of Bennett Jones' Pension Division Series. Some of the upcoming pension division topics include:
- The pension provisions that must be included in a settlement instrument in order for it to effectively divide a pension benefit.
- What happens to a pension benefit if a member or former spouse dies?
- What are deemed arrears if a retirement members' pension in pay is divided?
- Whether a former spouse's share of a member's pension benefit may be unlocked.
- Whether interest should be added to a former spouse's lump sum share of a member's pension benefit.
- Whether recent case law has changed the maximum pension amount payable to a former spouse.
- Whether a former spouse is entitled to a share of a member's supplemental employee retirement plan benefit (SERP benefit).
We are passionate about ensuring that Ontario's pension division rules are understood and are implemented in accordance with applicable laws. There are complexities involved in the division of a pension benefit on marriage breakdown and the instances of litigation have increased in recent years.