Introduction
Background: Bill 133
Valuation in draft regulations
Process for division of pension assets
Gaps in draft regulations


Introduction

The Ontario government has released for public comment draft regulations on the division of pension assets on marital breakdown.

The pension and the matrimonial home are often the most valuable matrimonial assets. On the breakdown of a marriage, it is not uncommon for the member, former member or retired member of a pension plan to retain the pension, while the former spouse retains the matrimonial home, with the balance of the other assets used to make up the difference in value.

While pensions are recognised as family assets, previously there was little guidance on how to value and divide pensions. The Ontario Pension Benefits Act prohibits the division of pensions before the date on which a pension starts being paid. It also prevents the amount of pension to be given to either party under a domestic contract or court order from exceeding 50% of the pension benefits earned during marriage.

This has caused valuation issues concerning the question of whether the value of a pension on the date of a marital breakdown should be based on:

  • the value of the pension as if the pension plan member terminated employment as of the date of the marital breakdown; or
  • the value of the pension at retirement.

There can be large differences in value depending on early retirement subsidies and other ancillary benefits that form part of a pension.

Background: Bill 133

In order to bring clarity to pension benefits in the event of a marriage breakdown, the Ontario government enacted Bill 133, the Family Statute Law Amendment Act 2009, which received royal assent in May 2009. Bill 133 made two important reforms to the Pension Benefits Act:

  • valuation of pensions - plan administrators must use a prescribed formula to determine the value of pension assets on marital breakdown; and
  • settlement of pensions - the former spouse may receive immediate settlement of his or her entitlement where a court order, family arbitration or domestic contract awards a payout from the pension.

Settlement will be affected by way of:

  • lump-sum transfers if the marriage breakdown occurs before retirement; and
  • the division of the pension in pay if the marriage breakdown occurs post-retirement.

If the pension at issue is a joint and survivor pension, a former spouse may request a single pension. This single pension would be payable for the life of the former spouse, as opposed to him or her receiving a portion of the pension and survivor's pension.

Bill 133 also abolishes the previous 'if and when' arrangements that allowed pensions to be excluded from the division of assets. At present, only if and when a pension becomes payable does a portion of it (no more than 50%) become payable to the former spouse. This means a former spouse can be at risk of receiving nothing if the member spouse dies before receiving the pension.

Valuation in draft regulations

The recently released draft regulations finalise this new regime. In particular, they give plan administrators the responsibility of calculating the values of both the pension overall and the pension attributable to the period of marriage or cohabitation, as applicable. Formulae are provided to permit administrators to make these calculations.

The 'preliminary value' is defined as the total value of the pension up to the date of the breakdown. This value assumes that the pension member will receive no increases in salary or other new benefits. The 'imputed value' is defined as the portion of the preliminary value that is attributable to the period of marriage or cohabitation, as applicable.

Process for division of pension assets

The plan administrator must provide a 'statement of imputed value' within 60 days of receiving a complete application for such a statement from either spouse. The superintendent of financial services must approve the forms used for both the statement of imputed value and the statement of imputed value application. Approved forms have not yet been released, although the draft regulations lay out the content of both forms.

Plan administrators may charge fees to cover the costs associated with processing applications. Defined contribution pension plans may charge C$200 per application and defined benefit pension plans may charge C$500 per application. Plan administrators must begin paying the former spouse's portion of the pension within 60 days of receiving a complete application. The value of the member's pension is then recalculated following division of the pension.

Where either spouse has filed an application for a statement of imputed value, the plan administrator must make relevant pension documents available to the former spouse. The former spouse is entitled to inspect these documents for up to one year after the statement of imputed value application has been submitted. This entitlement ceases once division of pension payments has begun.

Gaps in draft regulations

There are several issues that are not addressed by the draft regulations. For example, hybrid plans, such as multi-employer pension plans that include defined benefit and defined contribution benefit aspects, are not incorporated in the draft regulations. Similarly, there is no provision for eligible former spouses to leave their lump-sum entitlements in the plan for their credit. This option is contemplated by Bill 133 and is expected to appear in future regulations.

The valuation regime proposed in the draft regulations also perpetuates the differences between provinces. Uniformity between the provinces concerning the division of pensions on marital breakdown is unrealistic, given the different provincial family law regimes. The administration of pension divisions for pension plan administrators with plan members in multiple provinces will continue to be complex and costly.

The government is seeking public comment on the proposed regime and the draft regulations by April 18 2011. They may be proclaimed into force as soon as July 1 2011.

For further information on this topic please contact Mark Newton at Heenan Blaikie LLP by telephone (+1 416 360 6336), fax (+1 416 360 8425) or email ([email protected]).