The Ontario government has released Draft Regulations regarding the division of pension assets on marriage breakdown for public comment.

The pension and the matrimonial home are often the most valuable matrimonial assets. On marriage breakdown it is not uncommon that the member, former member, or retired member of a pension plan retains 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 recognized as family assets, there was previously little guidance on how to value and divide pensions. The Ontario Pension Benefits Act prohibits the division of pensions before the date a pension starts being paid. It also limits the amount of pension to be given to either party under a domestic contact or court order to exceed 50% of the pension benefits earned during marriage.

This has caused valuation issues, concerning whether the value of a pension upon the date of a marital breakdown should be based upon the value of the pension as if the pension plan member terminated employment as of the date of marriage breakdown or the value of the pension at retirement. There can be large differences in value depending upon 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 marriage breakdown; and
  • Settlement of pensions: The former spouse may receive immediate settlement of their entitlement, where a court order, family arbitration, or domestic contract awards a payout from the pension.

Settlement will be affected by way of: (i) lump sum transfers, if the marriage breakdown occurs prior to retirement; and (ii) 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 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. Currently, 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 prior to receiving the pension.

Valuation in the Draft Regulations

The recently released Draft Regulations finalize this new regime. In particular, the Draft Regulations give plan administrators the responsibility of calculating the values of both the pension and the pension attributable to the period of marriage or cohabitation as applicable. Formulas 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 in marriage. This value assumes that the pension member will not receive any 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 the Division of Pension Assets

The plan administrator must provide a “statement of imputed value” (SIV) within 60 days of receiving a complete application for a SIV from either spouse. The Superintendent of Financial Services must approve the forms used for both the SIV and the SIV 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 $200 per application, and defined benefit pension plans may charge $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 an SIV, 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 a year after the SIV application is submitted. This entitlement ceases once division of pension payments have begun.

Gaps in the Draft Regulations

There are several issues that are not addressed by the Draft Regulations. For example, “hybrid plans”, such as multiemployer 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 these Draft Regulations also perpetuates the differences between provinces. Uniformity between the provinces concerning division of pensions upon marriage breakdown is not realistic, 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 until April 18, 2011. The Draft Regulations are available for download at this link. The Draft Regulations may be proclaimed into forced as soon as July 1, 2011.