Pension Division Upon Relationship Breakdown
Questions and Answers
1. What do the regulations say about pension division on Relationship breakdown?
Regulations enable non-plan-member spouses to take their share of the member's pension entitlement in a one-time lump-sum payment if the member spouse has not commenced a pension at the date the Family Property Order is made (FPO). This share cannot exceed 50% of the pension benefit earned by the plan member during the period of joint accrual (normally the time the parties were married and/or living together). In most cases this must be done immediately. However, for the non-member spouses of members who are within 10 years of pensionable age, (age 60 for MEPP and the SRP for Public Service Managers, and age 55 for PSM(CM)PP), there is also the choice of completing the lump sum transfer at the earliest of: the date plan member's termination benefit is paid, reciprocal transfer to another pension plan, retirement, or death.
The one-time lump-sum payment is not necessarily a "cash" payment to the non-plan-member spouse. In fact, in most cases, the payment must be made to the non-plan-member spouse's Locked-in-Retirement Account.
For pensions that are in pay at the time the Family Property Order (FPO) is filed, the regulations continue to allow non-plan-member spouses to take their share in the form of a pension, but the non-plan-member spouses cannot receive more than 50% of the pension benefit earned by the plan member during the period of joint accrual.
2. What was the effective date of these regulations?
The current rules for the division and distribution of pension benefits between married spouses were effective June 24, 2003. Those rules were amended to include the division and distribution of pension benefits between common-law pension partners, effective January 1, 2020.
3. Who is eligible for a division and distribution?
To trigger a division and distribution, an FPO must be filed with the plan administrator. Only spouses who met the definition of pension partner are eligible for a division and distribution of pension benefits. Common-law partners and Adult Interdependent Partners who do not meet the definition of pension partner are not eligible.
Please note, a Family Property Agreement is not acceptable to trigger a division and distribution of pension benefits. Only a Family Property Order is acceptable.
4. What information must be included in an FPO?
The FPO must set out:
- the beginning and end of the period that pension benefits are considered to have jointly accrued for the purposes of the Family Property Act;
- the "division factor", which is the percentage share of the jointly accrued benefit which is awarded to the non-member spouse). This percentage must not exceed 50%;
- where the non-member spouse is eligible, whether or not a delayed division has been chosen; and
- if pensionable age has already been reached, the date to be used in calculating the Total Entitlement. If no date is mentioned in the order, the pension plan administrator will use the date following the day on which the order is made.
Please note, a Family Property Agreement is not acceptable to trigger a division and distribution of pension benefits in MEPP, or PSM(CM)PP. Only a Family Property Order is acceptable.
5. What are the rules respecting immediate division?
For members whose pensions are not yet in pay, the regulations allow for an immediate lump sum payment of the non-member spouse's share of pension entitlements accrued during the relationship to be transferred out of the plan upon the filing of an FPO. The non-member spouse's share is usually locked-in and must be transferred to the non-member spouse's Locked-in Retirement Account (LIRA). The non-member spouse's share is only available as a cash payment where that share falls below the small benefit threshold or the member was not vested.
6. Who is eligible for a delayed division?
If the member spouse is "vested" (that is, eligible for an immediate or deferred pension) and is within 10 years of pensionable age at "end date" (the end of the period of joint accrual, as set out in the FPO), the non-member spouse can choose to delay the calculation and distribution of their share until the member spouse triggers a benefit payment upon terminating from the pension plan, completing a reciprocal transfer (if applicable), retiring or dying. The share will be paid as a lump sum.
7. What is "pensionable age" under each of the pension plans?
Pensionable age is defined as being age 60 for Management Employees Pension Plan and Supplementary Retirement Plan (SRP) for Public Service Managers, and age 55 for the Public Service Management (Closed Membership) Pension Plan.
8. When does the non-member spouse's share become payable if there is a delayed division?
When the non-member spouse is eligible for and chooses a delayed division, his or her share is not paid until the "event date". "Event date" means the time when the member spouse triggers a benefit payment, specifically, the date the first of the following events occurs:
- the member spouse terminates and receives a lump sum;
- the member spouse commences a pension;
- the member spouse dies; or
- the member spouse transfers to a new pension plan under a reciprocal agreement (if applicable).
9. When is a pension split?
If the member spouse is already receiving a monthly pension at the time the FPO is made, the non-member spouse's share will be a portion of the pension being paid to the member spouse. When a pension is already in pay, no lump sum payment can be made to the non-member spouse.
10. Is a pension available instead of a lump sum payment?
Not directly. However, amounts transferred into the non-member spouse's retirement savings vehicle will be paid to him or her as a form of pension when the savings are converted into periodic payments.
11. What is the non-member's spouse's share?
The non-member spouse's share at the relevant time is equal to the "total entitlement", times the ratio of the pensionable service accumulated in the period of joint accrual to the total pensionable service, times the division factor. The division factor cannot exceed 50%. If a pension is being paid, the "total entitlement" is equal to that pension. Otherwise, the "total entitlement" is calculated as the commuted value of the member's pension, as if the plan member terminated from the pension plan at the relevant time and commenced receiving their pension at pensionable age. If the plan member is not vested, the "total entitlement" is equal to the contributions the plan member made to the plan, plus interest.
12. How is the commuted value calculated?
The assumptions used for calculating the commuted values are consistent with the recommendations of the Canadian Institute of Actuaries for the computation of transfer values from registered pension plans.
13. Why is the non-member spouse's share based on a pensionable service ratio rather than a continuous service ratio?
Using pensionable service, rather than continuous service, allows situations such as part-time service, prior service purchases and service transferred in from another pension plan under a reciprocal agreement to be dealt with equitably when calculating the non-member spouse's share.
14. How are prior service purchases and service transferred into the plan under a transfer agreement handled?
The regulation stipulates that pensionable service accumulated by the member spouse during the period of joint accrual includes any transferred-in service that relates to service performed during the period of joint accrual, and all other prior service, to the extent it was paid for during the period of joint accrual. If the member spouse is paying for prior service through amortized monthly payments, only that portion of the service fully purchased by payments already made during the period of joint accrual will be included.
15. How is the member spouse's benefit adjusted after an immediate division if the eventual benefit turns out to be a pension?
If the non-member spouse receives his or her share immediately and at a time when the member spouse is still accruing further pension entitlements, the member spouse's eventual benefit must be adjusted at time of payment to reflect the payment to the non-member spouse.
The portion of the accrued pension, at the end date, which was awarded to the non-member spouse is preserved as an offset amount. This offset is increased by the cost of living adjustments as if it were a deferred pension. It is also decreased if the member's pension commencement is prior to pensionable age.
When the member's pension commences, it is reduced by the offset amount, with the adjustments as described. The resulting reduced pension is referred to as the "adjusted pension".
16. How is the member spouse's benefit adjusted after an immediate division if the eventual benefit is a lump sum payment?
Where the member spouse's eventual benefit is a lump sum payment instead of a pension, the lump sum is decreased by multiplying it by the ratio of the "adjusted pension" (calculated as set out in the question above) that would otherwise have been paid (i.e. if a lump sum were not be paid) to the unadjusted pension that would otherwise have been payable.
17. What information must the plan administrator provide respecting a division and distribution of pension benefits on marriage breakdown?
Either the member spouse or the non-member spouse can request information at the point in time where a FPO is being contemplated.
- Upon written request of either party, the plan administrator must provide both with a statement containing:
- an estimate of "total entitlement" calculated as of the date of request or an earlier date if specified in the request;
- the date the member spouse became a participant in the pension plan;
- the amount of pensionable service accumulated up to the date of request and, if the written request indicates the period of joint accrual , the amount of pensionable service accumulated during that period; and
- if applicable, the date the member spouse terminated from the pension plan.
- The plan administrator will provide this statement on request, but is not required to provide it more frequently than once in a calendar year.
- At the time an FPO is being obtained and/or at the time the actual division and distribution takes place, the non-member spouse can request information on their share, including information relating to the calculation of that share, in order to verify its accuracy.
- After a division takes place, the plan administrator must provide the member spouse with a written statement indicating the date the division became effective and a summary and description of the member spouse's remaining benefits.
18. How accurate is the estimate provided by the plan administrator?
The estimate of the "total entitlement" is calculated on the date requested. The estimate is based on the information provided in the request and on the information readily available in the plan administrator's records. The amount can change significantly with changes from month to month in interest assumptions or if the member terminates plan membership.
This Q & A has been provided for information purposes only. In the event of any discrepancies between the Q & A and the Public Sector Pension Plans Act and regulations, the latter will prevail.