Updated FSRA Advice for Plan Administrators regarding Pension Division upon Marriage Breakdown
November 25, 2021
The Financial Services Regulatory Authority of Ontario (“FSRA”) has finalized its guidelines for pension plan administrators dealing with the valuation and division of pension benefits upon marriage breakdown. These guidelines became effective on November 9, 2021, and will be reviewed by November 9, 2026.
These guidelines only apply to administrators of pension plans governed by Ontario’s Pension Benefits Act, and not to administrators of federally-regulated plans, federal government plans, and supplemental employee retirement plans, among others. However, Ontario’s Family Law Act will still apply to members of such plans residing in Ontario. The FLA states that their pensions should be valued “where reasonably possible” in accordance with s. 67.2 of the PBA, though with “necessary modifications”.
Administrators of multi-jurisdictional plans should note that, due to the 2020 Agreement Respecting Multi-Jurisdictional Plans, a member’s benefit accrual is determined by the law of the last province in which they resided with their spouse prior to separation.
When it comes to members of non-multijurisdictional plans who now reside in a different province than where their pension was earned, the administrator must first determine which province’s family law legislation applies to calculating the pension value. This is usually the jurisdiction in which the member and their spouse last resided together. This legislation may set out how the administrator should divide the property. Next, the administrator must determine which province’s pension law legislation applies in order to administer the division of the pension. This is based on the jurisdiction in which the pension was earned.
The commuted value of defined benefit pension benefits must be calculated using methods consistent with s. 3500 of the Standards of Practice of the Canadian Institute of Actuaries (“CIA SOP”). These methods differ slightly depending on the Family Law Valuation Date (“FLVD”). Administrators should note that the CIA SOP were amended effective December 1, 2020. One major change is that commuted values of terminated members entitled to a subsidized early retirement pension are now calculated using the “50/50 assumption”: 50% probability of retirement on the date that results in the highest commuted value, and 50% probability of retirement on the earliest date the member would be entitled to an unreduced retirement to benefit. Prior to December 1, 2020, commuted values were calculated using a 100% probability that the member would retire on the former date. The updated CIA SOP include many other changes, which administrators and actuaries should review.
FSRA also advised on how to calculate pensions from a multi-employer pension plan (“MEPP”). If their plan terms so permit, MEPPs that provide defined benefits can retroactively reduce accrued pension benefits. Any changes to the member’s entitlement after the FLVD cannot be recognized for family law value calculations. Further, administrators must calculate the value of the benefit as if the member had terminated their membership in the plan on the FLVD. FSRA therefore advises that administrators reflect plan provisions that reduce the benefit payable only if the terms in effect on the FLVD explicitly provide for an automatic reduction on termination of a member’s accrued benefits, and the member would be eligible for portability rights if they terminated membership on the FLVD.
FSRA also provided calculation guidance regarding ancillary benefits, indexation, calculating purchased pension credits compared to transfers, and annuities.
Payment and Division
If the plan member is not retired on the FLVD and the parties choose to divide the pension, the administrator must pay the spouse their equalization payment as a lump sum. The spouse will be entitled to interest on that lump sum if the settlement instrument expresses their share as a percentage of the Family Law Value. If the lump sum is expressed as a dollar amount, the administrator will only pay interest if the instrument so specifies. The administrator is not responsible for paying pre- or post-judgement interest.
If the plan member is retired on the FLVD, the administrator must pay the spouse a share of the member’s pension.
Administrators cannot apply an adjustment to an active member’s defined benefit until they terminate employment or plan membership. Therefore, FSRA recommends that administrators include in such members’ annual pension statements a note indicating that the amount of any pension estimate will be reduced after the lump sum transfer. Administrators may include an estimate of the reduced pension.
Complications may arise if the member is active on the FLVD but has retired by the settlement or payment date. The administrator can pay the spouse’s share as a lump sum and then adjust the retired member’s pension, but FSRA notes that other options are available. For instance, the administrator may reduce the amount available for apportionment for family law purposes, and include a disclaimer on the Statement of Family Law Value that the amount available for transfer will decrease if the member retires before the lump sum settlement is made.
If a retired member returns to employment and suspends their receipt of their pension, FSRA advises that the plan administrator should suspend the spouse’s share as well. The plan member may be personally responsible for any discrepancy in payments, depending on the terms of the settlement instrument.
If the retired member dies before the spouse, the payment of the spouse’s share will end, unless there is any guarantee period. However, if the pension is paid in a joint and survivor form and the spouse did not waive the survivor portion, they will be entitled to lifetime survivor pension after the member dies.
FSRA has withheld guidance regarding the spouse predeceasing the plan member until it has had time to review the Ontario Court of Appeal’s decision in Meloche v. Meloche.
FSRA advises that administrators should ensure retired members and their spouses have sufficient information to decide whether the spouse will waive their entitlement to any survivor pension. Before accepting a Post-Retirement Waiver of Survivor Pension After Separation Form from a member’s spouse, the administrator must ensure (1) the parties separated after pension payments started; (2) the retired member’s pension hasn’t yet been divided; and (3) the member and spouse received a Statement of Family Law Value. FSRA also states it is advisable but not required for the parties to incorporate the waiver in their settlement instrument.
Pension and Benefits