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Benefits and Pensions MonitorB.C. Re-thinks Pension Division Legislation In contrast, the DSM provides that the spouse must wait to receive the share until the member elects to have the pension commence. At that date, the spouseʼs share is based on the retirement value of the pension. Typically the spouse receives the share as a separate lifetime pension. The ISM is substantially easier to administer than the DSM, but also places the lowest possible value on the spouseʼs share. The DSM places a more generous value on the spouseʼs share because it is based on the retirement value of the pension and takes into account the actual date of pension commencement. The DSM is also more effective than the ISM in ensuring that the spouse has income for old age. The ISM is more common in Canada. It has been adopted in Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, and for federal public sector pensions. The DSM is used in B.C., Nova Scotia, and Newfoundland and is also the method used for dividing CPP benefits. Ontario and PEI typically do not involve the plan in pension division, and compensate the spouse for a share of the pension through an equalization payment. B.C.’s Legislation In September 2005, the Ministry of Attorney General for B.C. asked the British Columbia Law Institute (BCLI) to review its pension division legislation (found in Part 6 of the Family Relations Act). The BCLI is a private, non-profit agency that functions as B.C.ʼs centre for law reform and policy development. A BCLI committee, consisting of experts in pensions, pension law, and family law, and representing the various stakeholders (plan administrators, advisors and regulators, and the family law bar), published its report in May 2006. It is available online at www.bcli.org. The first question considered was whether the DSM should be continued or abandoned in favour of the ISM. It was concluded that:
In this respect, the BCLI reached the same conclusion as the Canadian Institute of Actuariesʼ Task Force. Perhaps the most important issue addressed by the BCLI was the extent to which pension division poses unwarranted risk to plan administrators. One area in which the extent of liability cannot be comfortably predicted is where pension division arrangements have not been finalized, but the plan administrator has reason to believe that a memberʼs marriage is ending and the spouse may be acquiring an interest in the pension. Can a plan administrator incur liability from constructive notice of the spouse's rights? The BCLI recommended that no liability should arise until the plan administrator is provided with an agreement or court order, and prescribed forms, adequately addressing pension division. Deferred Division Because the essence of the DSM model is deferred division, there will be circumstances where a party may die and the pension is replaced by a death benefit, before division is completed. As with other Canadian jurisdictions, B.C. pension standards legislation requires a minimum pre-retirement death benefit (at least 60 per cent of the commuted value of the pension). Some plans provide a more generous death benefit. The minimum standard has only been in effect in B.C. since 1993, so it is possible for some plans to provide for no death benefit for accruals before 1993. Although the parties should, they seldom take into account the generosity of the death benefits that will be paid in determining the spouseʼs share. In the absence of express direction, B.C. provides that the spouse is entitled to all of the death benefit that accrued during the relationship, determined on a pro rata basis. However, this may be far too generous, or completely inadequate, depending on how the death benefit is determined. The BCLI recommended that the share the limited member receives should be the same, whether the pension or death benefit is divided. In B.C., the spouse has two options for receiving a share of an ʻun-maturedʼ DB pension. The spouse may wait until pension commencement and take a separate lifetime pension, or the spouse may, at any time after the member becomes eligible to have the pension commence, elect to receive a lump sum transfer of the commuted value of the spouseʼs share. The BCLI concluded that the lump sum option unnecessarily complicated matters. Many spouses lack investment experience and would prefer receiving a separate pension, leaving investment responsibilities to the plan. Also, some administrators reported that plan members were often upset that the lump sum transfer was available to the spouse, but not the member. The BCLI recommended removing the lump sum transfer option and permitting the spouse to elect a separate pension at any date after the member becomes eligible to have the pension commence. Currently, the spouseʼs share of an ʻun-maturedʼ DB pension is determined by assuming the pension commences at the valuation date. Some administrators of plans that provide subsidized early retirement benefits thought this approach substantially undercut the plan funding assumptions. The BCLI proposed dealing with this by providing that, if the spouse elects to take the pension before the member does, the share should be determined by assuming the pension commences when the member reaches the average age of retirement for plan members. Need For Comment In addition to these recommendations, numerous other proposals were made to fine-tune pension division, ranging from making beneficiary designations to dividing benefits in supplementary plans. Administrators and advisors of plans having B.C. members should make it a priority to review the BCLI report and provide comments (pro or con). Phase 1 of the consultation invites comments on proposals made by the BCLI for amending the rules governing pension division on marriage breakdown (available online at http://www.ag.gov.bc.ca/). The deadline for commenting on the Phase 1 consultation is May 31. ■
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Thomas G. Anderson is a lawyer with Anderson Pension Law Consulting. He chaired the British Columbia Law Institute committee that reviewed the operation of Part 6 of the B.C. Family Relations Act.