Federation of Law Societies of Canada

2006 National Family Law Program

Pensions

Thomas G. Anderson, Q.C.

Anderson Pension Law Consulting

North Vancouver, B.C.

tomander@telus.net

I. Introduction -1-

II. Pensions are Matrimonial Property -3-

III. Legislative Responsibility in Canada -4-

A. Income Tax Act -4-

B. Federal Public Sector Plans -4-

C. Provincial Public Sector Plans -4-

D. Private Sector Plans -4-

1. Federally regulated undertakings and private occupational plans -5-

2. Provincially regulated undertakings -5-

3. What plans are subject to provincial jurisdiction -8-

4. Plans not subject to provincial law -9-

IV. Pensions: Types, Components and Optional Forms -10-

A. Types of Pensions -10-

B. Components of a Pension and Other Employment Benefits -10-

1. Components of a Pension -10-

(a) Contributions and Net Investment Returns -10-

(b) Voluntary contributions -11-

(d) Survivor Benefits -11-

1. Preretirement survivor benefits -11-

2. Postretirement survivor benefits -12-

(e) Bridge benefits -12-

(f) Supplementary benefits -12-

(g) Flex benefit plans -14-

(h) Phased Retirement -14-

(i) Severance and Other Employment Termination Benefits -14-

(j) Health benefits -15-

(k) Deferred Compensation Arrangements -15-

C. Optional Forms of Pension -16-

1. Single life pension -16-

2. Guarantee period -16-

3. Joint annuities -17-

4. If a Survivorship Benefit is Payable to a Member's "Spouse" -17-

V. Models of Pension Division in Canada -19-

A. Overview -19-

B. Some History -19-

C. Legislative Models of Pension Division in Canada -20-

1. Immediate Settlement Model: Immediate

Determination and Division -22-

(a) Rule that applies if the pension is not matured -22-

(b) Rule that applies if the pension is matured -23-

2. Equalization Payment Model: Immediate Determination -23-

3. Deferred Settlement Model - Deferred Division -25-

(a) Rule that applies if the pension is not matured -26-

(b) Rule that applies if the pension is matured -27-

D. Evaluating the Models -27-

E. Miscellaneous Issues arising under each of the Models of Pension Division -28-

1. Entitlement to information -28-

2. 50% Limit on Spouse's Share -28-

3. Entitlement of Common Law Partners to Share Pension Benefits -29-

4. Are Pre-marriage Accruals Divisible? -29-

5. Are Post-separation Accruals Divisible? -30-

6. Continuation of Spousal Status After Division? -30-

7. Is a Court Order or Agreement required? -31-

8. Determining the Spouse's Share -31-

9. Extent to which legislation is considered by the courts -31-

F. Common Mistakes -32-

VI. Using Locked-in Benefits -36-

A. Meaning of "locked-in" -36-

B. Earliest age locked-in funds can be used -36-

C. Exceptions to the lock-in rules -37-

1. Commutation of Small Amounts -37-

2. Age 65 and Small Total Amounts -37-

3. Permanent Departure from Canada -37-

4. Commutation for Shortened Life Expectancy -37-

5. Hardship -37-

VII. Income Security Programs: Canada Pension Plan and Old Age Security -38-

A. Overview -38-

B. Old Age Security -38-

C. Division of CPP -38-

VIII. Pension Benefits Division Act -41-

A. In force -41-

B. Application -41-

C. Provides a Mechanism for Pension Division -41-

D. Married and Unmarried Spouses -42-

E. Making the Application -42-

F. Old orders and agreements -42-

G. Where a Member or Spouse has Died Before Division -42-

H. Method of Division: Lump Sum Transfer -43-

I. Estimating the Value -44-

J. Tips and Traps -44-

1. Methods for speeding up the process -44-

(a) Request division of the pension only -45-

(b) Have the member write a letter consenting to the division -45-

2. Timing of the pension division and how it affects value -46-

(a) How vesting affects a pension's value -46-

(b) How assumptions about retirement date
affect a pension's value -46-

(d) How interest rate assumptions affect value -47-

(e) Summary -47-

3. Common Mistakes to Avoid -48-

(a) Application can only be made after the parties divorce,
or have been separated for one year -48-

(b) Severance is not divided under the PBDA -48-

(d) Survivor benefits -49-

Appendix A
Summary of Canadian Pension Division Legislation
Governing Private Occupational Plans -50-

Alberta -50-

B.C. -50-

Manitoba -51-

New Brunswick -51-

Newfoundland -52-

Nova Scotia -53-

Ontario -53-

Prince Edward Island -53-

Quebec -54-

Saskatchewan -54-

Territories: North West Territories, Yukon, Nunavut -54-

Appendix B
Glossary of Pension Terms -56-

I. Introduction

These materials canvas basic principles relating to pensions generally, and to pensions as matrimonial property. The discussion then focuses on a comparison of the mechanics of pension division models that apply across Canada, both at the federal and the provincial level. Information is also included about (a) various other types of registered plans (such as RRSPs), (b) locked-in benefits (in LIRA's, LRIFs, and LIFs), (c) division of CPP, and (d) division of federal public sector pensions under the Pension Benefits Division Act.

A note about vocabulary: various technical terms used with respect to dividing matrimonial property, and with respect to pensions, differ across Canada. For example, private occupational plans in Quebec are referred to as supplemental pension plans, whereas that term elsewhere often refers to a plan provided by an employer that pays benefits in excess of the limits set under the Income Tax Act for registered pension plans. The types of property that may be divided between spouses when a relationship ends are referred to using different terms from province to province. Even the words used to describe spouses are not standardized. I've tried to use a relatively standard vocabulary, but it is important to be aware that different terms may be used in the relevant jurisdiction or under the relevant legislation.

I apologize in advance that, although this is a Canada-wide survey, the materials have a B.C. focus. It is unavoidable since that is my primary area of expertise. It is my hope, however, that by assembling this information, it will assist as a point of departure for determining, and assessing, the law governing these issues in other Canadian jurisdictions. Also, the discussion is not meant to be definitive of the law of all Canadian jurisdictions. Where various issues are discussed, the references to the laws of a particular province, for example, are by way of example and a reference to one province's laws does not imply that those laws are necessarily different from (or, for that matter, the same) as any other province that is not mentioned.

I am indebted to the following people in preparing this paper: Mary-Anne Kril, a lawyer in Ontario, for so greatly adding to my understanding of the treatment of pensions under Ontario law (I have drawn heavily from materials she prepared for a joint presentation we made for the National Judicial Institute in February, 2006); and Professor Rollie Thompson, who very kindly provided me with his invaluable course materials on Nova Scotia law governing pension division. I also wish to record my appreciation to the following who reviewed an earlier draft of this paper and kindly offered their comments and suggestions: Louis Robillard, Régie des Rentes du Québec, Direction des affaires juridiques; Linda Buchanan, Senior Pension Analyst, Pension Commission of Manitoba; Ellen Nygaard, Deputy Superintendent of Pensions, Alberta; Nancy MacNeill Smith, Superintendent of Pensions, Nova Scotia; David Wild, Superintendent of Pensions, Saskatchewan; and Garry Pittman, Public Works and Government Services Canada, Superannuation. Any errors in these materials are, of course, mine alone. My intention is to keep this paper updated so that it will continue to be a useful resource, and will post it on my website (http://www3.telus.net/pensions2/default.htm). I would, therefore, be very grateful if anyone spotting the need for a correction would contact me.

II. Pensions are Matrimonial Property

Family law is a matter of provincial jurisdiction. Under the law of each of the provinces and the territories, pensions are considered to be matrimonial property and divisible when a relationship ends. The rules were originally developed with respect to married spouses, but the legislation of some provinces now also permit pensions to be divided between unmarried spouses when the relationship ends.

III. Legislative Responsibility in Canada

A. Income Tax Act

The Income Tax Act sets out rules that all plans must observe in order to be registered under that Act, in order to benefit from special tax rules respecting the treatment of contributions and the sheltering of investments, including placing restrictions on the amount that may be paid under a registered pension plan. The ITA expressly allows for the division of registered pensions.

Many employers also provide supplementary pension plans to pay benefits that exceed the ITA ceiling. These plans are not registered under the ITA, nor are they regulated under provincial or federal legislation that sets out minimum standards for registered pensions.

B. Federal Public Sector Plans

Federal public sector pension plans (e.g., armed forces, public service, members of parliament, RCMP, diplomats and so on) are established, and regulated by, federal statutes. To some extent, the federal Pension Benefits Standards Act also applies to these plans, but not its pension division rules.

The division of pensions of federal public sector pensions is governed by the federal Pension Benefits Division Act. Judges' pensions are not under the umbrella of the federal PBDA, although a recommendation to include them has been made.

C. Provincial Public Sector Plans

Each province has established plans for persons employed in the public sector. These plans are established, and regulated, by relevant provincial legislation. Public service pensions in the territories are governed by federal legislation and would be divisible under the federal PBDA.

In some cases, the legislation establishing the public sector plan sets out discrete pension division rules that differ from those that apply to private occupational plans.

In other cases, the establishing legislation expressly provides that the same rules apply to both public sector and private occupational plans (such as in B.C., where plans for the public service, municipal workers, and teachers are divided under Part 6 of the Family Relations Act, although the plan texts also expressly address various pension division issues.)

A consideration of the rules that govern the pensions of public sector workers in Canadian provinces and territories is beyond the scope of this paper.

D. Private Sector Plans

Responsibility for private sector plans is also divided between federal and provincial governments.

1. Federally regulated undertakings and private occupational plans

Federal legislation governs federally regulated private undertakings (such as telecommunications, banks, airlines, inter-provincial transportation, and waterfront workers). The regulatory statute is the federal Pension Benefits Standards Act.

The federal government is also responsible for regulating private occupational plans of employees accruing benefits in any of the territories. The federal PBSA, s. 4(2), provides that the Act applies to any private occupational plan for persons in "included employment", a term defined in s. 4(4)(i) as "any work, undertaking or business outside the exclusive legislative authority of provincial legislatures, and any work, undertaking or business of a local or private nature in Yukon, the Northwest Territories or Nunavut."

All of these plans must be registered under the federal PBSA. The regulatory body is the Office of the Superintendent of Financial Institutions ("OSFI").

Provincial law applies to these pension plans to some extent, but the relationship between federal and provincial law has not been completely worked out (see, e.g., s. 31 of the PBSA which expressly provides that provincial pension benefits legislation is relevant to the extent that it is not inconsistent with the provisions of the federal PBSA).

The federal PBSA sets out pension division rules (PBSA, s. 25) which incorporate by reference the relevant provincial law that governs family property. Nevertheless, many of these federally regulated occupational plans have adopted pension division rules that are inconsistent with provincial law (e.g., CN, CP, and Air Canada, for example, all refuse to follow provincial law if it differs from the administrative policies they have adopted).

The current federal PBSA came into force in 1987. The previous legislation did not provide for pension division. Some plans took the position that if the member's pension commenced before 1987 under the previous legislation, or if the pension division arrangements were finalized before that date, there was no obligation on the plan to assist in the pension division. However, it has now been held that, at least with respect to agreements or orders made before 1987, the plan must administer the pension in accordance with the agreement or order under the current PBSA: Robertson v. CNR (2000), 79 B.C.L.R. (3d) 168 (S.C.).

2. Provincially regulated undertakings

In all other cases, Canadian plans established for employees in the private sector are subject to provincial regulation. Every province(except P.E.I.) entered into a Memorandum of Reciprocal Agreement which stipulates that the "major authority" where the plan is registered "� shall exercise its own statutory functions and powers and the statutory functions and powers of each minor authority for such plan." The basic rule is that the plan must register in each province that it has members. However, to avoid the problems that would arise from requiring a plan to abide by multiple sets of regulatory rules, the provinces have enacted legislation that provides that, if the plan is registered in the province in which it has the majority of members, it will be granted an exemption from registration in other provinces in which it has members (see, e.g., B.C. PBSA, s. 4). It was initially assumed that this meant that regulators could enforce only some of the features of pension law by individual jurisdiction, and allow the law of the jurisdiction of registration to apply in other cases where it made sense to have a single rule (e.g., specifying investments for pension funds). However, the accepted legal position is that the "major authority" (the superintendent of the jurisdiction in which the plan is registered) has to enforce all the laws of all jurisdictions in which plan members are employed (see, e.g., McColl-Frontenac Petroleum Inc., Re (2002), 33 C.C.P.B. 235 (Ontario Pension Commission).

So, from a pension regulator's point of view, the law that applies to a member's pension division on marriage breakdown is the pension benefit standards legislation of the province in which the member is employed.

Complicated issues still arise, however, concerning determining which laws govern a plan (i.e., whether federal or provincial rules apply and, where more than one province is involved, which province). Things become even more complex in matrimonial disputes, since different rules apply to determine which territory's laws and which territory's courts have jurisdiction to decide family matters, including the division of pensions. For example, an Alberta court may have jurisdiction to divide family assets, and apply Alberta rules to the division of a pension. But if the plan is registered outside Alberta, there may be problems enforcing the order.

This is further complicated by the various statutes that set out the mechanics of pension division. For example, if the parties are resident in one province at the time the relationship ends, then the laws of that province likely apply for sorting out the financial and property issues. If one of the spouses accrued pension benefits while employed in another province, however, a question arises concerning which province's pension division rules apply. Many pension plans (and their advisors) take the position that it is the laws of the province where the plan is registered. However, that rule, which has been adopted as a matter of convenience by pension regulators for the purpose of pension benefits standards legislation, and endorsed in pension regulation legislation, in no way purports to override the matrimonial law of other provinces. A distinction must be made between laws regulating a pension, and matrimonial law. Many difficult issues arising from conflicts of laws between Canadian provinces still remain to be sorted out by the courts.

Other complicating factors arise from the fact that provincial legislation is often parochial. It often provides that a pension is divisible if the parties enter into an agreement or obtain a court order. But the legislative drafter usually defines "agreement" by reference to agreements made under the province's family property legislation, and orders by reference to orders of the province's courts. For example, even if a B.C. court concludes that Ontario pension division law applies, and makes an order to that effect, it is not possible for the B.C. court order to satisfy the requirements of the Ontario Pension Benefits Act, which requires the order to be made by an Ontario court.

This result would appear to be unacceptable, given the position adopted by the SCC in cases like Morguard Investments Ltd. v. Savoye, [1990] 3 S.C.R. 1077 (where it was held that an order - in that case dealing with a mortgage - made in one Canadian province is enforceable in other Canadian provinces, so that a Canadian province should not treat the order of a court in Alberta, for example, with the same suspicion it might attach to an order emanating, for example, from Albania).

In my view, it would be desirable if all the relevant statutes were amended to provide specifically that the order in question must be that of a court of the province, or the order of a court of competent jurisdiction in another province, which is the approach adopted, for example, in Alberta, New Brunswick, Newfoundland, and B.C. Manitoba enacted legislation to this effect in 2005 but, at the date of writing, it has not yet been proclaimed.

Most of these types of problems can be sorted out where the legislation permits the pension division arrangements to be recorded in an agreement (which is the case for all Canadian jurisdictions except Alberta and Quebec, where only a court order will do for dividing pension benefits). While court orders are often not freely enforceable across provincial boundaries, agreements are usually not subject to those limitations (although there may be questions arising from the different formalities required by various provinces). In one file, for example, a plan registered in Manitoba refused to recognize the order of an Alaskan court that otherwise had jurisdiction over the matrimonial issues. They required that the order be "registered" in Manitoba.

There is, unfortunately, no procedure available for registering orders for non-monetary remedies, such as the division of property (although the Uniform Law Conference has developed model legislation for that purpose, which has been enacted in B.C. and brought into force on May 4, 2006). Most people believe that because Canadian provinces have reciprocal enforcement legislation that applies to the enforcement of money judgments, this answers the problem for any other type of judgement. But that is unfortunately not the case.

The problem in the case mentioned was solved by having the parties sign a contract setting out their agreement that the pension be divided in accordance with the order attached the agreement as a schedule. But that was possible only because Manitoba legislation permits agreements, wherever made, to divide pension benefits even though it did not (at that time) expressly extend that same courtesy to, for example, the order of a court in Alberta.

These issues obviously also arise, with greater force, where the pension is located outside Canada. For example, pensions in the U.S. are divisible on marriage breakdown. Most private occupational plans, for example, would be subject to the provisions of the U.S. Employee Retirement Income Security Act or "ERISA". However, that Act expressly provides that a pension can be divided only by the order of a court of a U.S. state. This often causes insuperable problems for Canadians who, e.g., may never have lived in a U.S. state (such as may be the case for NHL pensions, or pensions of persons involved in the movie business). In other cases, it may be possible to find a state that would have jurisdiction over the matrimonial issues to make an appropriate order. Often plan advisors in these situations recommend obtaining a Canadian court order, and then filing it in a U.S. state. But, while filing is permitted in many cases for spousal and child support orders, or for judgments for debt, as in Canada, no U.S. state that I am aware of permits the filing of an order for non-monetary remedies such as the division of a pension.

Even if it is not possible to find a tie between the parties and their relationship and a U.S. state, traditional principles of private international law would probably permit bringing an action in the state where the pension plan is located to obtain the appropriate order. It is not clear, however, that ERISA would provide the court with sufficient jurisdiction to make the appropriate order. The problem is even worse in the U.K., which has recently adopted pension division legislation. That legislation expressly restricts court proceedings under it to persons who are resident in the U.K.

3. What plans are subject to provincial jurisdiction

Fortunately, in most cases these difficult conflicts issues do not arise. Many plans are subject to provincial jurisdiction, such as:

(a) any plan that is established by the provincial government;

(b) any plan that must be registered under the pension regulatory legislation of the province, because the fact that an exemption is provided for the purposes of pension regulation does not exempt the plan from the remainder of the province's laws. For example, if an Ontario registered plan is carrying on business in Manitoba and has an employee in that province, if the plan wrongfully dismisses the employee, it could not argue that the question must be determined by Ontario law. Clearly, Manitoba law would be relevant. I would suggest the same analysis applies to determining which province's matrimonial laws govern the division of the pension. Many, but not all, pension regulators agree with this analysis.

(i) by the express terms of the plan,

(ii) by reason of a reciprocal agreement under the Pension Benefits Standards Act,

(iii) by the operation of legislation that regulates the plan (this is the position, e.g., with respect to plans regulated under the federal PBSA, which incorporates provincial pension division legislation by reference. See ss. 25(2) and (3), which provide:

25.(2) Subject to this section, pension benefits, pension benefit credits and any other benefits under a pension plan shall, on divorce, annulment or separation, be subject to the applicable provincial property law.

(3) A pension benefit, pension benefit credit or other benefit under a pension plan that is subject to provincial property law pursuant to this section is not subject to the provisions of this Act relating to the valuation or distribution of pension benefits, pension benefit credits or other benefits under a pension plan, as the case may be.

As mentioned, however, not all federally regulated private sector plans have accepted that the provincial legislation applies to them. The question has not yet been litigated, so far as I am aware.

Also as mentioned, federal public plans (e.g., pensions for the armed services, the RCMP or the public service) are divided in accordance with the federal Pension Benefits Division Act and would therefore not be subject to provincial law setting out the mechanics of pension division. However, the federal PBDA operates only if a spouse is first entitled to a share of the pension under a province's matrimonial property laws, and an order or agreement dividing the pension must first be obtained under provincial law before the PBDA will apply.

4. Plans not subject to provincial law

There are various methods for dividing pensions that are not subject to local provincial laws. Essentially, these are the techniques that were adopted before pension division legislation was enacted, such as through an "if and when" division, administered between the parties, or by the member buying out the spouse's interest. An "if and when" division has been given various names at various times. In B.C. this was referred to as a the Rutherford Order, in Alberta the McAlister Order (McAlister v. McAlister, [1983] 2 W.W.R. 8 (AltaQ.B.)), and in Manitoba the George Order (George v. George (1983), 35 R.F.L. (2d) 225 (Man. C.A.)). It is also sometimes referred to as a "benefit split". Essentially, it requires the member to pay the spouse a specified fraction of each payment received under the pension.

IV. Pensions: Types, Components and Optional Forms

A. Types of Pensions

There are three basic types of pension plans:

1. defined benefit plans: the value of a pension in a defined benefit plan depends on a formula such as,

e.g., (2 per cent) x (years of service) x (average of final 5 years of salary).

There are three types of defined benefit plans: (a) flat benefit, (b) career average earnings, and (c) final average earnings.

2. defined contribution plans: They consist of contributions (made by employers, employees or both) and investment returns on the contributions. When the member retires, the pension account is used to purchase an annuity for the member. Because of this, they are also often called "money purchase plans." They are similar in many respects to RRSPs. (A recent innovation--adopted in Saskatchewan effective May 10, 2006--is to permit defined contribution plans to offer variable benefits as an optional form of pension. If the member elects a variable benefit account, funds can be withdrawn on a regular basis, similar to a RRIF, subject to minimum withdrawal requirements. Under the Saskatchewan legislation, there is no ceiling on the amount that may be withdrawn).

3. hybrid plans: hybrid plans have features of both defined benefit plans and defined contribution plans.

B. Components of a Pension and Other Employment Benefits

1. Components of a Pension

A pension may consist of a number of different components. To make matters more complicated, there are a variety of other benefits that are paid or payable on employment termination that are often related to, or resemble, retirement assets.

(a) Contributions and Net Investment Returns

While the employee is earning the pension, contributions will be made to the plan. Some plans, referred to as "non-contributory", are funded solely by the employer. If the employee is required to make contributions, the plan is referred to as contributory.

(b) Voluntary contributions

Plan members are sometimes entitled to make additional, voluntary contributions to their plans (although because of changes in the Income Tax Act, this is less common now and, in most cases where there are voluntary contributions they were made some years ago). These are sometimes overlooked when pensions are divided and not always automatically divided under pension division legislation.

A problem arises if the division of voluntary contributions is not directly addressed. The value of voluntary contributions depends upon the contributions made to date (plus investment returns). Therefore, they should usually be divided in the same way as RRSPs (e.g., each spouse would receive 50% of the current value of the voluntary contributions, or the value that accrued during the relationship, as of the date of marriage breakdown). It would be incorrect to divide these benefits as part of the rest of the pension using a pro rata formula (where the spouse's share of the benefits decreases as the member accrues additional pensionable service). If, however, the agreement or order sets out a pro rata approach that does not expressly address how voluntary contributions are to be divided, at least in B.C. the formula will apply to both the pension and the voluntary contributions equally (Srivastava v. Srivastava (1997), 40 B.C.L.R. (3d) 358 (BCCA)).

(c) Retirement Annuity

The retirement annuity is what most people think of when they think of a pension: the income stream paid when a plan member retires.

(d) Survivor Benefits

1. Preretirement survivor benefits

If a member dies before pension commencement, the pension is replaced by a preretirement survivor benefit. The adequacy of the survivor benefit is of importance any time division of the pension is deferred (such as under the "if and when" model).

Canadian pension benefits legislation sets out minimum standards that pension plans must adhere to. The usual standard for a preretirement survivor benefit is that it must be no less than 60% of the commuted value of the pension that accrued to the date of the member's death. However, pension benefits legislation is, in many jurisdictions, a relatively recent phenomenon, and these rules tend to apply from the date the relevant legislation came into force. So, for example, the minimum survivor benefits under the federal PBSA apply only from 1987, when the current act came into force. B.C.'s Pension Benefits Standards Act came into force in 1993 and Newfoundland's in 1997. Although the 60% minimum benefit seems substantial, it will be inadequate if the member was a member of the plan for any appreciable period before the legislation came into force. Saskatchewan has dealt with this issue, effective June 1, 2005, by enacting legislation requiring a minimum pre-retirement survivor benefit of 100% of the commuted value of a member's pension. The legislation has full retroactive effect.

Pension benefits legislation sets out minimum standards and some plans provide benefits that exceed those minimum standards. For example, some plans have adopted the 60% standard for all of the pension, even the portion that accrued before the relevant legislation came into force. It is also becoming more common to find pension plans that provide a preretirement survivor benefit that is equal to 100% of the commuted value of the pension.

The federal PBSA rules for preretirement survivor benefits provide that the minimum benefit is a return of employee contributions plus interest. The 60% minimum benefit applies only if the member is survived by a spouse. If the pension is subject to the federal PBSA, the member dies before the pension commences and is not survived by a spouse, and the plan is non-contributory, the preretirement survivor benefit is zero.

Good practice therefore requires, if division of the pension is to be deferred, that the amount of the preretirement survivor benefit be determined.

2. Postretirement survivor benefits

Survivor benefits may also be payable after pension commencement. These are discussed below in "C. Optional Forms of Pension."

(e) Bridge benefits

Another frequent component of a pension that is usually regarded as divisible as part of the pension is called a "bridge benefit" or "bridging benefit" (see, e.g., Vestrup v. Vestrup, [1999] B.C.J. No. 1057 (BCSC)). Bridge benefits are a temporary monthly supplement paid in the early years of the pension and designed to provide level income. Probably the most common example is the CPP bridge benefit. This is an additional monthly payment that ceases when the member reaches 65, to take into account the CPP benefits that would then be payable (although no adjustment is made if the member elects to have CPP commence at an earlier age). Some plans make similar arrangements for Old Age Security benefits. Some plans are structured to provide the bridging benefit automatically. Others allow the member to elect the option.

Where the benefit is optional, what essentially is taking place is that the member elects to front load the payment of part of the pension.

(f) Supplementary benefits

The Income Tax Act allows pension plans to register under the Act and be given special tax treatment. The ITA, however, places a limit on the amount of a pension that can be paid from registered plans. In order to exceed that limit, some employers provide high income earners with a "top up" or supplemental pension plan ("SPP"). An SPP is not registered under the Income Tax Act.

SPPs were once relatively rare. For many years, however, the Income Tax Act ceilings did not keep pace with inflation and it is quite common to find now that a member is entitled to benefits under a registered plan as well as under a supplementary plan. Since 1990, the ITA ceiling on what could be paid annually under a pension was frozen at the formula: $1722 times years of pensionable service. This was raised in 2004 (to $1833 x PS) and 2005 (to $2000 x PS). In 2006 and ensuing years, the maximum is indexed to wage growth.

SPP's, by definition, are not registered under the ITA, and are also not regulated under Canadian pension benefits legislation. Many jurisdictions have their pension division legislation set out under the legislation regulating registered pensions benefits. Since the SPP is not regulated by the relevant legislation, it is likely that these benefits would not be caught by the legislative scheme for pension division. In many jurisdictions, therefore, there may be a discontinuity between the provisions of family property legislation (which would regard any pension, whether registered or unregistered, as matrimonial property) and the provisions of pension division legislation (which deal only with registered pensions).

The advice to lawyers, clearly, would be: (1) determine whether there are supplementary benefits, (2) if so, determine the limits of the relevant pension division legislation and whether the legislation deals adequately with the supplementary benefits, and (3) if not, deal with these benefits in alternative ways (such as by having the member pay the spouse compensation for the benefits, or dividing them using the "if and when" model).

Some pension division legislation deals expressly with SPPs. For federal public servants the supplementary part of the pension is automatically divided under the federal Pension Benefits Division Act. Similarly, the division of provincial public sector pensions in B.C. includes the division of supplementary benefits earned by the civil servant.

Where the SPP is divided by paying the spouse the share in a lump sum, because the lump sum represents sums in excess of what are payable under a registered pension, the lump sum cannot be rolled over into an RRSP, and would be paid to the spouse in cash (and taxed in the year of receipt).

For private sector plans, it is sometimes difficult to discover whether the member has benefits under supplementary plans. Requests to the plan for information may not disclose the existence of the SPP if, for example, it is set up and operated by the employer.

The advice to lawyers is that, if a party has an interest in an SPP, a copy of the plan text should be reviewed to identify the benefits available under it. Some kinds of SPP, for example, are directly integrated with the registered plan and simply pay the amount that exceeds the ITA maximum for registered plans. Other SPPs take the form of a defined contribution plan, and provide for increased benefits (through indexing, for example).

(g) Flex benefit plans

It is becoming more common to see employers provide employees with what are referred to as flex benefit plans (as in McLean v. McLean, 2004 CarswellOnt 4234 (Ont. S.C.) where the plan consisted of contributions from the employer that permitted the employee to purchase health and insurance coverage. In McLean, the court took these benefits into account when determining each parties' income, but these plans are also a form of property).

The traditional model for providing an employee with benefits is to develop a one-size-fits-all package that is provided to all employees. Different employees may well have different needs (a younger member with a family may wish a more generous dental plan, for example, while an older member whose children have grown and left the home, may wish instead better extended medical benefits or greater life insurance).

As a result, some employers have developed benefit plans that allow the employee flexibility in selecting which benefits to receive (or enhance). Frequently, a flex benefit plan will allow the employee to elect to enhance pension benefits (by, e.g., improving early retirement benefits, purchasing additional service, funding future indexing, or increasing survivor benefits).

When sorting out financial matters at the end of a relationship, if one party is a member of a flex benefit plan, it will be necessary to determine whether the other spouse is entitled to any share of the plan and, if so, how that is to be achieved.

Where the flex benefit plan is solely linked to the pension benefits, this may not be unduly difficult. Weyerhaeuser, for example, has a flex benefits plan that consists of contributions and net investment returns which the employee, on retirement, may elect to receive either in cash, or by enhancing the pension. It would be possible to divide this type of flex benefit plan separately from the pension.

Where, however, the plan, is linked to many other types of benefits, it is not clear what a fair result should be. Most Canadian models of pension division do not address the division of flex benefit plans. I would anticipate that this is a question Canadian courts will be asked to sort out fairly soon.

(h) Phased Retirement

A similarly challenge is posed by plans that offer phased retirement (under which a person can draw a pension while continuing to work on a part-time basis and accrue benefits). Alberta and Quebec permit such arrangements and other jurisdictions are interested in introducing similar provisions.

(i) Severance and Other Employment Termination Benefits

This topic deserves a separate session on its own, and is clearly too vast for any concrete advice to be provided in a paper dealing with pension benefits. However, it is important to be aware that a pension is not necessarily the only benefit paid on employment termination and much work remains to be done in Canadian jurisdictions in developing the principles that should govern how these various types of employment termination benefits should be treated when a relationship ends.

(j) Health benefits

A similar issue sometimes arises with respect to extended health benefits. These benefits are provided to many retired employees, who are often entitled to designate a spouse, even a former spouse, beneficiary of the health plans.

These health plans typically require monthly contributions from the employee and, in many cases, it would be appropriate for the former spouse protected by the plan to contribute a share of those monthly charges.

In some cases, pretty convoluted steps are necessary to protect the former spouse, and these steps are often not appropriate except where the marriage is a long one. For example, federal public sector health benefits are available to a member and the member's spouse. Therefore, provided the member does not divorce the spouse, the benefits can continue during the parties' joint lifetimes. After the member's death, the federal public sector benefits continue for a spouse who is entitled to pension survivorship benefits. The Pension Benefits Division Act, however, expressly provides that no survivorship benefits are payable to a spouse with respect to any part of the pension that is divided under the PBDA. This poses a dilemma, since the health benefits are valuable. There are alternatives to a PBDA division (such as an "if and when" division administered by the parties) that should sometimes be considered to preserve the health benefits.

(k) Deferred Compensation Arrangements

Employees are often given the opportunity to take a financial stake in the employer's business in various ways, such as through stock options, Employee Share Ownership Plans (ESOPs), Deferred Profit Sharing Plans (DPSPs), and numerous other plans. Typically, if these benefits accrue over the relationship, they will be found to constitute matrimonial property.

Dividing these types of assets is possible, although the current methods are not always completely satisfactory.

Stock options are usually divided by designating the owning spouse trustee for the other, and requiring profits derived from exercising the options to be divided as and when that takes place.

Subject to plan restrictions, shares in ESOPs can frequently be divided in specie. If they are held in an RRSP, a portion of the shares can be rolled-over into an RRSP for the other spouse. Typically ESOPs have vesting requirements (so that shares acquired on advantageous terms cannot instantly be liquidated). In these cases, either the division can be deferred, or the spouse's share can be satisfied from vested shares.

Assets in a DPSP cannot be divided directly. The Income Tax Act recognizes no method for doing that (although draft provisions released February 27, 2004 would permit, on marriage breakdown, a direct transfer from a DPSP to an RRSP in the name of the other spouse). Currently, it is necessary to divide this asset in two stages: the employee would transfer the spouse's share to an RRSP in the name of the employee, and then roll-over those benefits to an RRSP in the name of the spouse.

C. Optional Forms of Pension

When electing to have the pension commence, the member is usually permitted to select to receive the pension in one of a variety of optional forms.

If the member has a spouse at pension commencement, pension benefits legislation requires the member to elect a minimum survivor benefit (as mentioned, most provinces require that the survivor benefit payable to a spouse on the death of a retired member be not less than 60% of the monthly payment made during the parties' joint lives. Manitoba requires a minimum 2/3 survivor benefit, but legislation enacted in 2005, when brought into force, will changed this to 60%).

If a member dies after retirement, then whether a death benefit is payable depends upon the form of pension the member has elected. Benefits payable on the death of a member after retirement are often referred to as "postretirement survivor benefits". It is worth reviewing the various optional forms of pension a member may elect to take on retirement.

1. Single life pension

A single life pension is paid only for the member's lifetime. If the member elects a single life pension, no benefits are payable after the member dies (except, possibly, for a refund of unspent contributions and net investment returns). If the pension is payable for only the life of the member then, when the member dies, the pension ends. A surviving spouse, or former spouse, would be entitled to receive no further share.

Since legislation requires a member with a spouse to elect a minimum survivor benefit, unless the spouse waives the benefit, one might assume that the decision to select a single life pension will usually be because other resources (life insurance or other assets) are considered adequate to fund future income needs without the security of a survivorship benefit. My colleagues who are directly involved in pension administration advise, however, that the decision to take a single life pension is more often motivated solely by the idea of receiving a slightly larger monthly payment without sufficient thought about what is to happen when the pension is gone.

2. Guarantee period

If the member elects a form of pension guaranteed to last for a minimum period of time (e.g., 5, 10 or 15 years), then any portion of the guarantee period that remains unexpired at the date of the member's death is payable to the beneficiary designated by the member. Where pensions are being divided by an "if and when" method, this is often the only form of security available to the former spouse.

3. Joint annuities

If the member elects a joint annuity, then a survivorship benefit is payable to the joint annuitant on the member's death. The survivorship benefit is typically a reduced amount. A joint and 50 per cent survivor pension would pay the survivor 50 per cent of the amount paid during the member's lifetime. A joint and 60 per cent survivor pension would pay the survivor 60 per cent of the member's pension. A joint and 100 per cent survivor pension would pay the survivor the same amount that was paid during the member's lifetime. If the spouse predeceases the member, however, the pension is unaffected. (A few plans will provide a survivorship benefit under which benefits will reduce on the death of the member or the spouse, an arrangement that usually allows a higher monthly value to be paid during the parties' joint lives.)

As mentioned, if the member has a spouse at the date of retirement, both federal and provincial legislation require the member to elect a joint and 60 per cent survivor pension, unless the spouse waives that benefit.

Typically, the monthly payment under a pension reduces the greater the survivorship benefit provided, so that, whatever optional form of pension elected, the plan's overall financial obligations remain constant. The survivorship benefit is being funded by lower pension payments during the parties' joint lives.

This is not always the case, however. Some older plans were set up to provide the survivorship benefit as a kind of bonus for married employees, where the amount paid during the parties' joint lifetimes would be the same as the amount paid under a single life pension (or only marginally less). This is the case, e.g., for Air Canada pensions.

Although it is possible to find exceptions, typically a joint annuity may only be elected between a member and spouse. For that reason, this option is usually not available for a member and a former spouse.

4. If a Survivorship Benefit is Payable to a Member's "Spouse"

Some plans provide a survivorship benefit only if the member has a "spouse" at the date of the member's death. Usually, a former spouse no longer qualifies as a "spouse" and is ineligible for the benefit.

This structure is typical, for example, of many federal public sector plans. If the member has retired and is receiving a pension, the survivorship benefit payable to the spouse is lost when the parties divorce, or the member forms a common law partnership. While the loss of survivorship benefits presents problems, those problems were largely superceded by the enactment of the Pension Benefits Division Act, which provides for dividing the pension by the transfer of the spouse's share in a lump sum.

This structure was also once common in many federally regulated occupational plans (e.g., many bank plans were set up this way, as were the Air Canada plans). However, the current federal PBSA, which came into force in 1987, provides that, as a minimum standard, a plan must provide a 60% survivor benefit for the person who qualifies as the member's spouse at the date of retirement. In my experience, not all plans have revised their texts appropriately. However, any private plan that purports to revoke the survivorship benefit if spousal status is subsequently lost is non-complying (see, e.g., Smiley v. Ontario (Pension Board) (1994), 4 R.F.L. (4^th) 275 (Ont. Gen. Div.) dealing with the provisions of the Ontario Pension Benefits Act). The minimum pension benefits standards legislation would override the terms of the plan.

Air Canada, which formerly provided that any survivorship benefit was lost on divorce, has since revised its plan text to provide, as required, that a 60% survivor benefit is unaffected by a subsequent change of spousal status. However, it continues to provide the parties with the option of electing a 50% survivorship benefit which, under its plan text, is lost if there is a subsequent change of spousal status. Air Canada's view is that the spouse, in waiving the 60% surviving benefit, has waived all aspects of the statutory minimum survivorship benefit requirements. This presents something of a trap for dividing an Air Canada pension. The parties frequently agree on an "if and when" division, incorrectly assuming that the 50% survivor benefit will be available for the protection of the member's former spouse.

Plan materials often state that there is a survivorship benefit for the member's "spouse," which sometimes creates a misleading impression. It is important to verify whether or not the benefit remains payable after a "spouse" becomes a "former spouse."

V. Models of Pension Division in Canada

A. Overview

Just to repeat: there is a limit concerning how much can be dealt with in a survey course like this. It is not practical to delve into every nuance of every legislative model for pension division (although provincial summaries are set out in Appendix A). What follows is Canadian law in broad brush strokes.

This section examines the rules adopted federally and provincially for dividing private occupational plans. As mentioned before, the rules a province applies to its public sector pensions may be different from those adopted for private sector plans.

Stripped down to the essentials, there are two major issues that must be resolved in developing any method of pension division:

(a) whether the spouse is entitled to a share of the pension determined by its current value (Termination Method), or by reference to the value the pension will have at a future date (Retirement Method), and

(b) whether the division is to be immediate or deferred.

Keep these questions in mind as we canvas the various approaches to pension division adopted in Canada.

B. Some History

Starting in the 1970's, each of the provinces enacted legislation providing for the division of matrimonial property between spouses on marriage breakdown. Some provinces expressly provided that pensions constituted family property (B.C., for example). Some were silent on the issue, and left the question to the courts (such as PEI and Nova Scotia). Some later amended their legislation to specifically provide that pensions constituted matrimonial property (Ontario and Nova Scotia). Whatever the approach, none of the provincial legislatures, in their wisdom, initially thought it necessary to describe how pensions were to be divided. This was left to the courts to solve.

The first conclusion arrived at by the courts was that, in the absence of pension division legislation, the method of pension division could not adversely affect third parties, namely plans and plan administrators (see, e.g., Rutherford v. Rutherford (1981), 30 B.C.L.R. 145 (B.C.C.A.), although, when the issue finally reached the SCC, long after pension division legislation had became more common, the panel indicated, in obiter dicta, that this was probably too conservative a position: Clarke v. Clarke (1990), 28 R.F.L. (3d) 113 (S.C.C.)).

This first conclusion necessarily limited the options available. Two solutions not involving the plan were adopted: (a) having the member buy out the spouse's interest, or (b) the so-called "if and when" division (a solution borrowed from the United States, particularly from California, where most of the pioneering work on pension division had been done). Under the "if and when" method,

(a) the member was designated a trustee for the spouse of the spouse's interest, and

(b) a formula was applied to determine the spouse's share of the pension: typically a pro rata approach, using � A/B, where A is pensionable service during the marriage and B is all pensionable service to the date of division (at the earliest of employment termination, plan termination, death of the member, or pension commencement). This is the familiar pro rata formula referred to earlier in the discussion of the "if and when" model of pension division, and referred to at various times as a Rutherford Order, a McAlister Order or a George Order. It was also endorsed in obiter dicta by the SCC in Best v. Best, [1999] 2 S.C.R. 868, which did not actually involve an "if and when" division, but dealt with instalment payments of an equalization payment that was linked to the pension.

Addressing the two fundamental issues identified at the start of this section, an "if and when" division is based on

(a) identifying a formula for determining a spouse's share, to be applied to the eventual value of the pension (the so-called "Retirement Method") (as opposed to valuing the interest immediately), and

(b) dividing the pension on a deferred basis.

Notwithstanding pension division legislation, if and when orders administered between the parties without involving the plan are still available and, in many provinces, commonly ordered by courts, or agreed to by the parties.

Since the "if and when" method was so universally accepted in Canada, it might have been reasonable to expect that this represented a consensus concerning the elements of a fair division under family property legislation. Moreover, Moge principles would suggest that each party should benefit equally by the pension that accrues during the marriage.

It is therefore surprising that many Canadian legislative models of pension division do not adopt these principles for dividing the pension or determining the spouse's share in any respect at all.

C. Legislative Models of Pension Division in Canada

Let's refer for a moment to the two fundamental questions I identified earlier that have to be answered in developing a method of pension division:

(a) whether the spouse is entitled to a share of the pension determined by its current value, or by reference to the value the pension will have at a future date, and

(b) whether the division is to be immediate or deferred.

The answers arrived at by the federal government and the provincial legislatures have led to three different models of pension division in Canada:

Immediate Settlement Model: immediate determination of value and immediate division. This is the approach adopted in Manitoba, Alberta, New Brunswick, Quebec and Saskatchewan and under the federal Pension Benefits Division Act and the federal Pensions Benefits Standards Act.

Equalization Payment Model: immediate settlement through an equalization payment. Ontario and Prince Edward Island use this model.

Deferred Settlement Model: immediate determination of the formula for the spouse's fractional interest and deferred division: this is the approach adopted in B.C., Newfoundland and Nova Scotia and was recommended by a task force established by the Canadian Institute of Actuaries to identify a uniform approach to pension division that could apply across Canada (see Report of the Task Force on the Division of Pension Benefits Upon Marriage Breakdown (Feb. 2003, Canadian Institute of Actuaries).

Of the three models, only the Deferred Settlement Model is consistent with the previous principles accepted by the courts before pension division legislation was enacted: i.e., it provides the spouse of a member with a more secure version of an "if and when" division (although other provinces, such as Alberta and Saskatchewan, have adopted variations of the Deferred Settlement Model which also, in certain circumstances, achieve a similar result. Also, Alberta issued a discussion paper in 2003 that canvassed options for widening the circumstances in which deferred division would be available).

Usually the Immediate Settlement Model and the Equalization Payment Models provide the spouse with a substantially smaller share of the pension than the Deferred Settlement Model, or what would be provided under an "if and when" division.

In many jurisdictions, there is a conflict between family property legislation and pension division legislation, such that the spouse's share may be greater than the amount that may be satisfied directly from the pension (this is the case, e.g., in Ontario, Nova Scotia, Alberta and Saskatchewan). In some jurisdictions (notably Alberta and Saskatchewan), the pension regulators expressly recognize that the rules set out in pension legislation are not intended to satisfy fully the spouse's rights under family property legislation. The legislation is intended, instead, to limit the exposure of the pension plan.

To the extent that the spouse is entitled to more than is permitted under pension division legislation, that is an issue that must be addressed between the spouses without the assistance of the plan.

However, the fact is that by enacting pension division legislation, legislatures have in many cases created a de facto threshold. Seldom, if at all, do the parties, or the courts, ever consider that the conflict between pension law and family property law in this respect should be addressed (this kind of question appears to arise only in Ontario and Nova Scotia. In Ontario, it arises from time to time, in cases involving the enforcement of old "if and when" orders. Ontario plan administrators, under the Ontario PBA, are permitted to administer the division up to a maximum of only 50% of the separation date value of the pension. To the extent that the order provides that the spouse is entitled to more than that, the spouse must look to the member to recover it.) In Nova Scotia, this issue has come to the fore more recently because of the decision of its Court of Appeal in Morash v. Morash, 2004 NSCA 20, 48 R.F.L. (5th) 312 (N.S.C.A.) where it was held that the whole of the pension earned up the end of the relationship, including pre-marriage accruals, is a family asset. But the Nova Scotia PBA permits only accruals during cohabitation to be divided.

1. Immediate Settlement Model: Immediate Determination and Division

As mentioned, Manitoba, Quebec, Saskatchewan, New Brunswick, and Alberta, and the federal PBSA and PBDA adopt this approach to pension division. This section discusses how the Immediate Settlement Model operates, and notes some of the more important variations that exist from statute to statute.

(a) Rule that applies if the pension is not matured

If the member is not yet receiving payments under the pension (i.e., it has not yet matured), the pension credits are valued as of the date of separation (or, in some cases, such as Quebec, the date the application is commenced) and the spouse's share is then transferred from the plan. The transfer is to a prescribed pension vehicle, which is usually an RRSP. Other options include a transfer to another pension plan, if willing to accept the transfer, or the credits may be used to purchase an annuity.

If the pension is "vested", then the spouse is entitled to a share of the commuted value of the pension. Vesting is a term of art. It means that the member has become entitled to a deferred pension. Different jurisdictions adopt different vesting rules. In B.C., for example, a pension vests after 2 years of pensionable service. Once a pension vests, the member is not entitled to cash out contributions. Similarly, after a pension is vested, any transfer of credits to a spouse when a relationship ends are "locked-in" meaning that the credits cannot simply be cashed out, but must be used to provide a life income (by purchasing an annuity - often not the best financial choice, or transferring the benefits to a LRIF or a LIF). Locking-in rules are discussed in more detail in Chapter VI of this paper.

If the pension is not yet vested, then the spouse's share is based on the employee's contributions plus interest.

Alberta has adopted an interesting variation if the member is within 10 years of normal retirement date defined by the pension plan (65 is usually the normal retirement date). In that case, for private occupational plans, Alberta provides that the spouse has an option of electing between (a) taking an immediate transfer of the commuted value of the spouse's share, or (b) deferring the division until the date the member elects to have payments under the pension commence and receive a separate pension payable for the spouse's lifetime.

Similarly, in Saskatchewan, if the member is eligible for an unreduced pension, then the spouse may elect to receive the share in the form of a separate pension payable for the spouse's lifetime.

(b) Rule that applies if the pension is matured

A pension "matures" when payments under it commence.

Some provinces adopting the Immediate Settlement Model apply the rule that applies to unmatured pensions even if payments under the pension have commenced. The spouse's share is satisfied by a transfer of the commuted value of the share to a prescribed plan (such as an RRSP) subject to locking-in rules.

However, some legislative schemes provide that the immediate transfer of the commuted value of the spouse's share is no longer available if the pension is matured. In that case, the division is "if and when". This is the position, for example, in Saskatchewan and Manitoba. Variations on this include allowing spouses the option of a commuted value transfer or an "if and when division", or requiring an "if and when" division, but allowing plans to voluntarily provide the commuted value transfer option (as in Saskatchewan and Alberta).

The drawback to an "if and when" division is that the spouse's share ends when the pension terminates. The adequacy of this method, therefore, depends upon the form of pension elected by the member. The optional forms of pension a member might elect were discussed above in section C. "Optional Forms of Pension."

Some legislative schemes of pension division take into account the limitations of the "if and when" division of pension division New Brunswick for example, provides for an annuity to be converted into two separate annuities, one for each spouse. Alberta, Saskatchewan and the federal PBSA each permit a plan to provide for this result voluntarily.

2. Equalization Payment Model: Immediate Determination

Under this approach (used in Ontario and in PEI), the pension is typically divided through the equalization payment. The following notes are based on Ontario law.

The period subject to division is from the date of marriage to the date of separation. For defined benefit pensions this is determined on a pro rata basis (Best v. Best). For defined contribution pensions, this is determined using the value-added method.

The pension is valued:

(a) assuming termination of employment as of the separation date,

(b) assuming retirement at various retirement dates, usually: earliest unreduced date, normal retirement (usually 65), and a midpoint,

(c) assuming standard mortality (unless the member has significant health issues, in which case, these may be taken into account), and

(d) adjusted for tax (based on the member's projected average tax rate at retirement): Farrar v. Farrar (2003), 63 O.R. (3d) 141, 32 R.F.L. (5th) 35; Bennett v. Bennett (2004), 9 R.F.L. (6th) 242 (Div. Ct.); Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208.

The actuarial report will show a range of values because of (b), and the parties, or the court, will determine the value to be used based on the member's likely date of pension commencement. Hindsight is not permissible in determining the likely date of retirement. For example, the member's actual date of retirement after the parties separated would not be a relevant consideration. The value selected is placed on the member's net family property balance sheet: Wolfe v. Wolfe (2003), 43 R.F.L. (5th) 223; Kennedy v. Kennedy (1996), 19 R.F.L. (4th) 454; Best v. Best, [1999] 2 S.C.R. 868.

If the pension is matured, and the non-member spouse is entitled to a survivor benefit, this is also valued, and placed on the non-member spouse's net family property balance sheet.

Double dipping: If the value of the pension is taken into account in determining the equalization payment then, as a general principle, income from the pension should not be taken into account in determining support obligations (Boston v. Boston, [2001] 2 S.C.R. 413 (5th) 4; Bennett). The idea of allowing a spouse a share of the capital value of the pension, and then of the income stream, is referred to as "double dipping". However, so-called double dipping has been permitted in a number of cases, such as: where the pension was undervalued for the purposes of the equalization payment, or the equalization payment was not made because of bankruptcy, or the need for support is due to the economic prejudice arising from the marriage: Strang v. Strang (1992), 39 R.F.L. (3d) 233 (SCC); Meiklejohn v. Meiklejohn (2001), 19 R.F.L. (5th) 167; Craig v. Craig, [2003] O.J. 5392 (Sup. Ct.); Bertrim v. Bertrim (2004), 49 R.F.L. (5th) 1; Leckie v. Leckie, [2003] O.J. No. 746 (Sup. Ct.).

Since the value of the pension accruing before marriage, and after separation, is not divisible, these parts of the pension would still be available for determining (and fulfilling) support obligations and would not offend the so-called rule against double dipping.

In my opinion, the courts have yet to fully consider the circumstances where the pension is "undervalued" when determining the equalization payment. It seems often to be assumed that the question is whether the equalization value was determined in accordance with the requirements of the FLA. However, since that value is based on a hybrid termination approach, it invariably places a lower value on the pension that accrued during the marriage than the actual value of the pension referable to that period in the hands of the member. As such, the difference in value (between the value accrued at pension commencement, and the value determined at separation) should also be available for satisfying support obligations without offending the so-called rule.

Alternative methods of division: The provisions of the Ontario FLA would permit the pension to be divided by an "if and when" order, although this would be permissible only in exceptional circumstances, such as: when the pension is the main or only asset, there are no other assets to satisfy the equalization payment without borrowing, and retirement is imminent (Best). The FLA provisions, however, would not permit the pension to be divided outside the FLA, such as by an at source division method (Caratun v. Caratun (1992), 10 O.R. (3d) 385, 42 R.F.L. (3rd) 113; Monger v. Monger (1994), 8 R.F.L. (4th) 157 (Ont. Gen. Div.); McNutt v. McNutt (2000), 5 R.F.L. (5th) 90, 96 (Ont. Sup. Ct.)). This is ironic, since it means that the Ontario PBA pension division rules have little or no application to Ontario pensions. However, once the equalization payment is determined, one option for satisfying the payment is by using the pension itself.

A note about the Ontario PBA: the Ontario PBA provides for a method of pension division that appears to apply only to members of plans registered in Ontario who accrue pension entitlement outside Ontario. Constitutionally, it is doubtful that Ontario has the jurisdiction to override the legislation of the province in which the member accrued the pension entitlement.

Under the Ontario PBA, the spouse's share is usually determined on a pro-rata approach, at the date of separation. The Ontario Pension Benefits Act limits the amount a plan may pay out to 50% of the value that accrued from the date of marriage to the separation date, determined assuming termination of employment on the separation date. But the spouse is not permitted to receive the benefits until the member elects to have the pension commence, or terminates employment and is eligible to commence receiving benefits. At that date, the spouse may elect to receive the share by any option available to the member. If a matured pension is being divided, it is converted into two separate pensions.

It would appear that in Ontario the PBA rules have little relevance, because most often the spouse is compensated for an interest in the member's pension through the equalization payment.

3. Deferred Settlement Model - Deferred Division

Under this model, the spouse becomes a kind of member of the plan (referred to as a "limited member"), and a formula is adopted for determining the spouse's eventual share of the pension. The share is based on retirement values, so is usually much more generous than either the Immediate Settlement Model or the Equalization Payment Model (both of which determine the value of the pension immediately assuming termination of employment at that date).

This rule, however, does not apply to all pensions and all plans. Distinctions are drawn depending upon whether the pension is matured, and the type of plan involved.

(a) Rule that applies if the pension is not matured

A pension in a money purchase (or defined contribution) plan is divided immediately, which is the same rule that applies under the Immediate Settlement Model. Since such a plan is functionally similar to an RRSP, there is no reason for deferring the division.

If the pension is not yet matured, and in a defined benefit plan, it is subject to deferred division. The basic approach is that when the member elects to have benefits commence, the spouse is entitled to receive benefits in the form of a separate pension (this is the case in B.C., Nova Scotia and Newfoundland). The reason for this approach is that the true value of the pension, since it depends on a formula, cannot be known without either (a) waiting for future events to unfold, or (b) making assumptions today to value the pension. The Immediate Settlement Model and Equalization Payment Model deal with this problem by assuming that the pension will never be more valuable than it is at the date the relationship ends. The basis of the Deferred Settlement Model is that there is no need to guess since the spouse's share is intended to function like a pension as well. By adopting a deferred division model, the spouse's share will be determined by the factors that actually exist at the date of division. This is the same result as under the "if and when" division model, except that under the Deferred Settlement Model the spouse is given a separate pension payable for the spouse's lifetime, whereas the "if and when" division would provide the spouse with benefits only for so long as the pension lasted (see further the discussion above in IV.C "Optional Forms of Pension").

In B.C., a spouse who becomes a limited member is entitled to elect between (a) receiving a transfer of the commuted value of the spouse's share at any date after the member becomes eligible to retire, or (b) waiting until the member elects to have the pension commence and receive the share in the form of a separate pension payable for the spouse's lifetime. The British Columbia Law Institute has recently recommended that the lump sum transfer option no longer be provided (unless available generally to members of the plan) and that the limited member instead be entitled to a separate pension at any date after the member becomes eligible to retire.

In Newfoundland, the spouse is entitled to a transfer of the commuted value of the pension if: (a) the pension is not vested, or (b) if it is vested but, at the date of marriage breakdown, the member is entitled to only a reduced pension. Otherwise the spouse is entitled to a separate pension payable for the spouse's lifetime when the member becomes entitled to an unreduced pension.

In Nova Scotia, the limited member is entitled to a separate pension, or a transfer of the commuted value of the share, only when the member elects to have the pension commence.

If the member dies before the pension is divided, the limited member receives a proportionate share of the preretirement survivor benefits. This may mean that the spouse's share of the pension reduces substantially if the member dies before division, because many pensions provide only the minimum required preretirement survivor benefit, which may be worth substantially less than the pension. In these cases, if permitted under the relevant legislation, it may make sense to provide a different formula for dividing the preretirement survivor benefit.

B.C. addresses this problem, but in doing so, creates another problem. The B.C. legislation takes into account that the preretirement survivor benefit may be reduced and provides that, unless the parties otherwise agree or the court otherwise orders, the spouse is entitled to all of the preretirement survivor benefit that accrued during the parties' relationship. But this provides too generous a share where the preretirement survivor benefit is not reduced.

If the limited member dies before the pension is divided, the share is paid to the limited member's estate.

(b) Rule that applies if the pension is matured

In B.C. and Nova Scotia, under this model, if the pension is matured, then the income stream is divided by "if and when" principles.

In Newfoundland, in contrast, the spouse receives the share of the matured pension in the form of a separate pension payable for the spouse's lifetime. In my view, the Newfoundland policy is preferable. Experience has shown that the "if and when" method of dividing a matured pension is often not satisfactory (because the parties all too often do not elect a form of pension that provides adequate survivorship benefits).

D. Evaluating the Models

The Immediate Settlement Model, which values the spouse's share by the termination model, places the lowest possible value on the spouse's share (both by basing it on current accruals, and assuming the latest possible date for pension commencement, thereby removing years, if not decades, from the actual income stream that will be paid). It allows the spouse, however, to access the share independently of retirement decisions made by the member. It is also relatively simple to administer.

The Equalization Payment Model also places a very low value on the spouse's share because it too adopts the termination model. However, it allows the spouse's share to be valued taking into account the probable date the member will elect to have the pension commence. This will often, therefore, place a higher value on the spouse's share than the Immediate Settlement Model. The Immediate Settlement Model requires that, if the pension is vested, the spouse's share must be used to provide the spouse with retirement income. In contrast, the Equalization Payment Model provides the spouse with cash that may be used immediately.

The Deferred Settlement Model tends to place the highest value on the spouse's share (and a value that is consistent with the "if and when" method of division). The Deferred Settlement Model also allows the spouse to make independent decisions respecting when to access the spouse's share. However, the Deferred Settlement Model tends to be more complicated than the Immediate Settlement Model or the Equalization Payment Model.

E. Miscellaneous Issues arising under each of the Models of Pension Division

1. Entitlement to information

In the absence of legislation, a plan administrator owes fiduciary duties to the plan member, and one of those duties is confidentiality. In the wake of privacy legislation, these duties have statutory force. Therefore, unless legislation provides to the contrary, a plan can release information to a spouse (or the spouse's professional advisor) only with the consent of the member, or with a court order.

Various jurisdictions, however, specifically provide that the spouse is entitled to information even without the permission of the member. In my view, this policy should apply in all jurisdictions.

There are still unexplored limits concerning what can be disclosed: a line must be drawn between what is relevant for a spouse to determine the spouse's share of a pension, and what constitutes personal information (perhaps the name of a new spouse, or the member's current address should be considered personal and not disclosable). Many members are upset when the plan provides information about salary (since the member often tries to keep that secret when contesting things like spousal support and child support). But, of course, if the plan formula depends upon salary--as it often does--this is information to which the spouse is entitled.

2. 50% Limit on Spouse's Share

A pension provides a valuable social function: it ensures that members of our society, when no longer able to work, have retirement income. It follows that pension division should, at the same time as it is protecting the spouse, also protect the member. For this reason, many statutes regulating pension division adopt a rule that prohibits pension division from taking more than 50% of the pension from the member.

Although these rules look similar, they are some notable distinctions: for example, Ontario's rule is 50% of accruals from marriage to separation. In contrast, Saskatchewan and B.C. calculate the 50% rule by reference to the whole of the pension up to the date of division so that the division can also take into account pre-marriage accruals, allowing more leeway in crafting an appropriate division between the spouses (see, for example, the discussion below dealing with the question of whether pre-marriage accruals should be divisible). Moreover, the Saskatchewan rule does not apply if the pension is matured. The reason for this is that, in Saskatchewan the rule is regarded as protecting the employee/employer relationship, something which vanishes on pension commencement.

The B.C. 50% rule may also be exceeded by court order. The court order may be by consent, so this turns out to be a very low hurdle. The practical result of this approach, however, is that pension division typically leaves the member with at least a 50% interest, and the cases where this is breached are exceptional.

An inflexible 50% rule often prevents the mechanics of pension division from giving full effect to the spouse's entitlement under matrimonial property legislation (as, e.g., mentioned earlier, is the case in Nova Scotia).

3. Entitlement of Common Law Partners to Share Pension Benefits

The last decade or so has seen a whirlwind of changes dealing with unmarried relationships, and the law of all jurisdictions, in one way or another, recognizes these relationships when dividing assets when the relationship ends. Sometimes there is express statutory recognition of the relationship and entitlement to a share of property. In other cases, it is done through principles of unjust enrichment, often using the remedial constructive trust.

However, whether the mechanics of pension division legislation are available often turns on whether the province's matrimonial legislation recognizes their relationship. Otherwise, the pension must be divided using a method that does not involve the plan.

Alberta does not recognize common law relationships for the purposes of dividing family assets. Neither does Newfoundland. Quebec allow persons in de facto relationships to opt in to the relationship, and B.C. also allows unmarried spouses to enter into an agreement which will allow the pension to be divided under the statutory rules. Manitoba (since 2002) and Saskatchewan (since 2001) both recognize common law relationships and confers the same privileges on those parties as enjoyed by married persons. Nova Scotia also recognizes common law partners in its pension division legislation, as does the federal PBSA and the federal PBDA (the PBDA common-law partner provisions were introduced in 2000 by the Modernization of Benefits and Obligations Act, but these did not come into force until September 1, 2003). As mentioned, the federal PBDA provides for the mechanics of pension division, which come into operation only if provincial law first confers a property interest in the pension on the spouse, and the same is true where the claimant is a common law partner.

4. Are Pre-marriage Accruals Divisible?

Canadian law is also inconsistent concerning whether any portion of the pension that accrued before the marriage is divisible between the parties. Manitoba (since 2004) automatically includes a prior period of cohabitation in the period subject to division. So does the PBDA (which also allows accruals before cohabitation to be included by court order).

Ontario, in contrast, excludes pre-marriage accruals, which may not be included in the division by court order or agreement of the parties.

The automatic exclusion of pre-marriage accruals may cause unfairness, in my view, when one spouse has a pension that accrued before, or only in the first few years of, a relationship which lasts, e.g., for many decades more. In a recent file, the husband had a pension, most of which accrued before the parties married. The parties, who had been married for over 30 years, were in agreement that the whole of the pension be divided 50/50. The plan, which was subject to Ontario law, was not able to assist the parties in doing this, even though under B.C. law, which governed their marriage, a court would have made that order. The only way to deal with this problem was to have the parties administer the division of the excess amounts themselves. Seen in this light, a 50% rule doesn't necessarily protect the member's retirement assets. It merely makes it more administratively difficult to provide for a fair method of division taking into account the circumstances of the parties.

B.C. and Saskatchewan both permit pre-marriage accruals to be divided in appropriate circumstances, and have adopted 50% rules that permit that. On my reading of Newfoundland legislation, it appears that pre-marriage accruals are excluded, unless a court otherwise orders.

5. Are Post-separation Accruals Divisible?

The question of whether it is possible to divide post-separation accruals is determined by the model adopted for pension division. All those Canadian jurisdictions that adopt an immediate valuation and transfer of the pension as their model tend to cut off entitlement at the date of separation. In Manitoba, for example, the legislation expressly excludes post-separation accruals. Quebec allows the inclusion of accruals up to the date that legal proceedings are initiated. In practice, in most Canadian jurisdictions, separation marks the end point of the period subject to division.

B.C. automatically includes post-separation accruals up to a so-called "triggering event" (the date the parties make a separation agreement, or the court makes a declaration of irreconcilability or an order of divorce or nullity). The court can reapportion entitlement to achieve fairness, and the emerging test in B.C. is that the cut-off date should be the date that economic prejudice arising from the marriage can be taken to have been compensated (e.g., where the spouse starts accruing pension entitlement independently, or where a compensation payment has been made).

6. Continuation of Spousal Status After Division?

In B.C., spousal status ends after 2 years' separation. This means that in B.C. it is necessary to take steps to trigger entitlement under the FRA before the 2 year period ends (by a separation agreement or a s. 57 declaration of irreconcilability). In a jurisdiction, such as Ontario, where death is a triggering event, this issue would not arise.

Under CPP, division is available even after a separated spouse dies (but the application must be made within 3 years of the death, if the parties were married, or 4 years of the separation, if the parties were not). Under the PBDA, the rule used to be 18 months from the death of either party, but this was stipulated by regulation and held to be ultra vires (Smith v. Canada (A.G.) (1999), 22 C.C.P.B. 229 (Fed. T.D.). So far as I know, there is no current limitation period for an application under the PBDA.

The various definitions of spouse, however, do give rise to difficult questions. For example, the federal model is that the member's spouse is the legally married spouse until they divorce, or until the member forms a common law partnership. If the member forms a common law partnership, the common law partner is the spouse. What happens if the common law partnership ends (by death or separation)? A common sense interpretation of the legislation would seem to hold that the legally married spouse's status does not revive. I think this causes real problems. For example, in a recent file, the member, after a 30 year marriage, formed a common law partnership of barely one year duration and then died. Under the federal PBSA, the common law partner was entitled to 100% of the preretirement survivorship benefits. Under B.C. matrimonial law, the common law partners' share of the pension would be determined on pro rata basis and would have been something like 1/32 of the pension. The common law partner made no claim to any family assets and wished to waive any interest in the pension. But this would not have the effect of reviving the legally married spouse's interest in the preretirement survivor benefits. We dealt with this by obtaining an order under B.C. legislation dividing the pension and allocating 100% of the interest to the legally married spouse. It should, however, be possible to deal with this issue directly under the provisions of the federal PBSA.

7. Is a Court Order or Agreement required?

Most pension division legislation is put in motion by either a court order or agreement. As mentioned earlier, when an agreement is recognized for pension division purposes, this helps avoid some of the problems posed by legislation that requires an order be made by a court in the province or territory where the parties now reside in another province or territory. In the U.S., and in the U.K., in contrast, pension division legislation is available only by obtaining a court order, and orders and agreements from outside the country are not recognized.

Alberta's legislation appears to recognize either an agreement or a court order. However, the regulations in fact place a strange definition on agreement. An agreement is recognized only if it is made by the parties under the Matrimonial Property Act and it is "adopted by the Court as a consent order".

8. Determining the Spouse's Share

Policy also varies as to whether there is any flexibility in determining the spouse's share of the pension (by agreement or court order). Some jurisdictions (such as Manitoba) set out a specific formula that does not allow any variation (the only alternatives allowed in Manitoba to division are set-off, or waiver). In B.C., the legislation defines a formula for determining the spouse's share that applies only if the parties do not otherwise agree, or the court does not otherwise order. In Newfoundland, the prescribed formula applies unless the there is a court order to the contrary.

9. Extent to which legislation is considered by the courts

Although there are many court decisions dealing with the division of a pension in the context of matrimonial property proceedings, it is seldom the case that administration of the pension division by the plan is scrutinized by a court, or any other third party. Even pension regulators seldom see it as being their role to provide guidance on how pension division legislation is to operate. As a result, the law that applies often varies from plan to plan (or, since most of the plans are advised by one or the other of a few major pension advisors, from plan advisor to plan advisor). This is not really an acceptable state of affairs when one considers just how valuable pension benefits are, although it is difficult to see what options there are for breaking out of this scenario.

As a practical matter, most experts in pension law are associated with pension plans. Few spouses claiming an interest in a pension are anxious to incur the substantial expenses of determining whether the share has been calculated correctly, even where they can find the expertise to mount a challenge.

F. Common Mistakes

A survey of court decisions dealing with the division of pension benefits when a relationship ends reveals that mistakes often occur which seldom receive appellate notice. Here are a few examples:

(1) relying on a statement of contributions to a pension as evidence of its current value: judges often have to make decisions concerning pension division with very little in the way of useful evidence concerning the type of pension in issue, or its value. As a result, many decisions are arrived at doing the best possible with the limited information that was provided. The value assigned to a pension is frequently based on the annual member's statement which sets out the value of contributions made to date. Contributions (plus net investment returns) are useful when dividing a defined contribution plan. They are seldom a reliable guide to the value of a defined benefit plan. As a very rough rule of thumb, a pension in a defined benefit plan is often worth about 2 to 2.5 times the contributions.

(2) relying on a plan statement concerning the value of the pension: some plans will calculate the value of the pension as of a particular date. Invariably, the value is determined assuming the member terminated employment at that date and commenced receiving benefits at the normal retirement age under the plan (usually 65). This may be useful for jurisdictions adopting a version of the Immediate Settlement Model. In Ontario, however, since the pension commencement date is very much a question of evidence, such a valuation would be less helpful. In B.C., where value must be determined making reasonable projections concerning increases in salary, and the likelihood of the member continuing in employment, dying before retirement, or living to retirement, the plan's valuation is of no use whatsoever. Similarly, in a Deferred Settlement jurisdiction like Newfoundland or Nova Scotia, where the parties are attempting to determine whether the spouse's interest should be bought out by the member, or divided under the applicable legislation, a termination valuation would ordinarily not provide a useful estimate of the value of the pension to the spouse under the pension division legislation.

(3) determining the period subject to division in a way that is inconsistent with the governing legislation: I see this quite often in B.C. decisions dealing with the division of CPP. All too often, the court will order that CPP is divided from the date of marriage to a date some time after separation, because this principle is applied for dividing other pension benefits. Under the CPP Act, however, the rules cannot be changed by order (or agreement). If CPP is divided, it is done on a year by year basis, starting with the unadjusted pensionable earnings of the parties in the first year of cohabitation and including every year up to the year before the parties separate (prior years may be excluded if the parties were separated during them). Similar mistakes may arise if dividing benefits under the PBDA. The PBDA provides that the period subject to division is determined from the date the parties commenced cohabitation to the date the parties separated. In jurisdictions where pre-marriage accruals are not typically divided, it is possible that the question of whether pre-marriage accruals during prior cohabitation should be divided is being entirely overlooked.

(4) waiving the benefit of a joint annuity: this may be more common in agreements, but I have also seen it ordered in reported judgments. Where the relationship ends after pension commencement, frequently the matured pension provides for a survivorship benefit. The member will often request that the survivorship benefit be waived. As discussed earlier, some jurisdictions permit a joint annuity to be commuted, into two single life pensions, for example, or permit the spouse to receive the share of the pension by a transfer of the commuted value, and commute the balance remaining into a single life pension for the member. But if the governing legislation does not permit either of these options, what is the effect of a waiver, or an order depriving the spouse of the survivorship benefit? Who is to receive the survivorship benefit if the spouse does not? In most jurisdictions, an agreement or an order that purports to deprive the spouse of the benefit of the survivorship benefits is effectively a nullity. The only way of dealing with this question, if legislation does not expressly permit it, is to designate the spouse a trustee to pay all or part of the benefits to a third party. A similar issue arises where the court order provides that a spouse is no longer entitled to benefits under federal legislation after the pension is divided. In some cases, if spousal status continues after division, the spouse may continue to be entitled to benefits (such as to preretirement survivor benefits relating to part of a federal public sector pension that was not subject to division under the PBDA). Where there is a conflict between the terms of the court order and the express terms of the legislation, it is a good question which is to prevail. The view of the federal public sector plan administrators is that, in these circumstances, the order is, to that extent, of no effect.

(5) an "at source" division of a federal public sector pension: in my experience, most spouses would prefer to get their share of the pension in the form of a pension. The alternative of investing a large sum of money to provide for a life income is something that they would prefer to avoid. Since many legislative schemes provide for dividing a matured pension between the parties by an "if and when" approach, or by dividing the pension into two separate pensions, it is often assumed that this is available in all cases, even under the federal PBDA. However, the only method of division under the PBDA is by a transfer of the commuted value of the spouse's share. An alternative is a method used before the PBDA came into force - dividing the pension through a support order (not advisable for many reasons, including the fact that spousal support may be subsequently varied, whereas a property right in a pension cannot be: see, e.g., Zimmerman v. Shannon, 2004 BCSC 1246 (currently before the B.C. Court of Appeal at the date of writing), where an agreement to divide a pension through paying the wife support that was made in 1993 was terminated 11 years later because the wife's income at that date was substantially higher than that of the retired husband).

(6) ordering that only the CPP of one spouse be divided: it may seem to make sense to divide CPP in this way, but the governing legislation does not allow any variations. If CPP is divided, both parties' contributions are added together for each year of the relationship (as defined under the legislation) and divided equally between them.

(7) failing to take taxes into account accurately when dividing RRSPs: when equalizing assets, or when buying out one spouse's share of another asset, the tax incidences of the assets are not always taken into account, or not always taken into account accurately. It would be a mistake, for example, to compensate a spouse for a share, e.g., in the matrimonial home, worth $100,000 by transferring $100,000 of RRSPs, without taking into account the taxes that will be paid on the RRSPs when they are realized. I don't believe I've seen this mistake in any judgment, although I have seen it in agreements. A more common mistake, which I have seen in reported cases, is to assume that the tax component of a cashed in RRSP is represented by the amount withheld at source. The amount withheld is stipulated under the ITA and bears no relationship with the true amount of taxes that will be levied. Under the ITA, for withdrawals from an RRSP outside Quebec, a withdrawal of less than $5,000 is subject to a withholding tax rate of 10 per cent; between $5,000 and $15,000 is 20-per-cent withholding; and any withdrawals greater than $15,000 are subject to a 30-per-cent withholding. In one judgment, the judge directed the taxes be minimized by the member making minimum withdrawals from the RRSP to attract the lowest withholding rates. However, the actual amount of tax paid on the withdrawal will be determined by the recipient's average tax rate, taking into account all income in that tax year, which may be much higher than the withholding rate.

(8) dividing pensions under different legislation without considering whether any adjustment must be made to reflect differences in the division schemes: if one spouse has a pension that is, for example, subject to division under the provincial legislation, and the other spouse has a pension that is divisible under the federal PBDA, is it open to the court to simply apply the different statutory schemes without taking into account the differences between them? If the provincial legislation provides for an immediate settlement model, the pension will be valued assuming immediate termination and pension commencement at 65. The federal PBDA, takes into account future indexing and also assumes the member will retire according to plan experience. These different approaches lead to placing differing values on each spouse's share of the other's pension. I think it is a good question whether that is a fair result, or whether another step is required so that each of the spouse's is being treated similarly.

My understanding is that the Equalization Payment Model avoids this problem. The value of the spouse's share determined for the equalization payment overrides the more generous provisions of the PBDA respecting determining the value of the spouse's share: Schafer v. Schafer (1996), 25 R.F.L. (4th) 410.

VI. Using Locked-in Benefits

A. Meaning of "locked-in"

When benefits are transferred to an RRSP, they are typically "locked-in", which means that the funds cannot simply be withdrawn, but must be used to produce a retirement income. This protects the retirement security of the owner of the funds.

Benefits in an RRSP do not have to be used immediately to generate an income. They can be retained in the RRSP until the owner reaches age 69. At that date, they must be used to produce an income. If the benefits are not locked-in, they can be rolled over into a Registered Retirement Income Fund ("RRIF"). If they are locked-in, then the transfer would be to Locked-in Retirement Income Fund ("LRIF"), or to Life Income Fund ("LIF"). An alternative is to purchase an annuity.

The differences between an RRSP, a RRIF and LIF are easy to summarize: all of them allow investments within the plan to grow tax free. A RRIF provides the same tax shelter for investments, but requires annual minimum withdrawals. A LIF also requires an annual minimum withdrawal, but also sets a maximum on the amount that may be withdrawn in any one year (with the view to ensuring that the benefits will last for the person's lifetime, based on average mortality).

Effective April 1, 2002, Saskatchewan enacted legislation allowing benefits in pension plans (or in an LRIF or LIF) to be transferred to a RRIF (at any time after the member turns 55 or reaches the early retirement age established by the plan). Transferring benefits to a RRIF means that they would be subject to minimum withdrawal requirements, but there would be no ceiling on the amount that may be withdrawn. Similarly, Saskatchewan, effective May 10, 2006, enacted legislation permitting defined contribution plans to offer variable benefits as an optional form of pension. The legislation provides that there is no maximum on withdrawals that may be made from a variable benefit account.

B. Earliest age locked-in funds can be used

The locking-in rules are determined by the jurisdiction that had regulatory authority over the pension.

There are usually age requirements as to when locked-in benefits may be used. A common provision is that the former spouse who receives a share of a pension on marriage breakdown by a transfer to a locked-in RRSP may transfer the funds to a LIF when the spouse reaches the same age as the member could have commenced a pension under the terms of the pension plan (usually 55). In some provinces, it is the date that either the spouse or the member was first eligible to access the pension.

Under the federal PBSA, and in Manitoba as well, there is no age restriction on using locked-in funds. However, the younger the plan owner, the smaller the annual benefits will be, so there may be financial reasons to postpone accessing the funds.

C. Exceptions to the lock-in rules

A number of exceptions to the lock-in rules are recognized (with some variation from jurisdiction to jurisdiction). Withdrawals, however, would be fully taxable as income for the year in which they are withdrawn. There are usually prescribed forms for effecting the withdrawal. If the person has a spouse, a spousal waiver is also usually required.

1. Commutation of Small Amounts

Pension benefits legislation typically requires all pension plans to allow terminating members the option of commuting vested benefits whose value is below a specified amount. In some cases, similar rules apply to otherwise locked-in RRSPs or LIFs. Governing legislation also often allows the plan to pay out a member's benefits in a lump sum rather than having to pay monthly pensions that are less than a defined nominal value.

2. Age 65 and Small Total Amounts

The relevant pension benefits legislation may also allow a person who is 65 or older to unlock pension entitlements if the sum of all of that person's entitlements in every pension plan, locked-in RRSP and LIF regulated by the legislation is less than a specified amount (in B.C., for example, this was 40 % of the Year's Maximum Pensionable Earnings ("YMPE") as defined under the Canada Pension Plan (40% of YMPE = $16,440 in 2005). If so, the owner may transfer the funds to an RRSP that is not locked-in, or receive the funds in cash.

3. Permanent Departure from Canada

Another ground recognized in some provinces is absence from Canada. In B.C., for example, a person who is absent for 2 or more years and who qualifies as a non-resident under the Income Tax Act (Canada) may have benefits in a pension plan, RRSP or LIF commuted and paid out in a lump sum.

4. Commutation for Shortened Life Expectancy

Benefits in a pension plan, RRSP or LIF may also be commuted and cashed out if the person has a physical disability likely to considerably shorten the person's life expectancy. The illness or disability must be certified by a medical practitioner.

5. Hardship

Another ground recognized in some, but not all, jurisdictions is financial hardship. Ontario and Alberta, for example, allows registered plans (other than pensions) to be unlocked on this ground. In Alberta, for example, the entire benefits are transferred from the plan to a locked-in account in a financial institution, but only enough is unlocked to address the circumstances of financial hardship.

VII. Income Security Programs: Canada Pension Plan and Old Age Security

A. Overview

The federal government provides income security programs, the main two of which are CPP and Old Age Security.

Quebec administers the Quebec Pension Plan, which is similar to CPP, but there are some differences.

If the parties have benefits under both CPP and QPP and are living outside Quebec at the relevant time, the application is sent to CPP, who then forwards it to the Regie des Rentes ("RRQ") for processing. However, the process is time consuming and can take months.

Where the parties have benefits under both plans, but are currently living in Quebec, an application for division of earnings made to the RRQ will be processed by the RRQ and then forwarded to CPP.

B. Old Age Security

OAS is a pension benefit. Should it be treated like other pension benefits? The answer to this question is not consistent from jurisdiction to jurisdiction.

In Alberta, for example, it was held not to be divisible between the spouses (Podemski v. Podemski (1994), 6 R.F.L. (4th) 131).

In B.C., in contrast, it has been held to be a family asset (Lattey v. Lattey (1989), 21 R.F.L. (3rd) 229 (BCSC)). Even so, in most cases the question of dividing OAS is typically ignored, or not an issue, for two reasons: (a) if the spouses are similar in age, each will have similar OAS entitlement, and (b) if there is an age gap, so that one will qualify for OAS sooner, courts will often reapportion entitlement to the senior person on the basis of need for economic self-sufficiency or a similar ground.

If OAS is being divided, the division should continue only until the younger spouse independently qualifies for OAS.

The only method of division for OAS benefits would be an "if and when" order administered by the parties, since there is no legislative machinery requiring the government to administer the division.

C. Division of CPP

Under the Canada Pension Plan, when a relationship ends, the parties' unadjusted pensionable earnings accruing during the relationship can be equalized. Equalization is available after a divorce, or once the parties have lived separate and apart for more than one year.

Equalization is available even after a separated spouse dies (but the application must be made within 3 years of the death, if the parties were married, or 4 years of the separation, if the parties were not). Different rules apply depending on when the relationship ended.

Waiver of equalization is available only if the province enacts legislation permitting waiver. To date, only Saskatchewan, Alberta and B.C. have enacted such legislation. Quebec, which administers the similar Quebec Pension Plan, also permits waiver.

If an agreement to waive is permitted, the waiver must specifically refer to the Canada Pension Plan sections that provide for division on marriage breakdown.

If there is no enforceable waiver, then equalization of CPP at the end of a relationship is automatic in the sense that there is no specific need for the agreement or court order to provide expressly for division. However, an application must still be filed to effect the division of CPP. The same is true for dividing QPP if the judgment is rendered outside Québec. The position is, however, different for judgments made by a Quebec court: these are automatically forwarded by the registry to the RRQ to be processed like an application.

Typically the result of equalization is fair to both parties, and is based on the view that, for the years during their relationship, each should benefit equally from CPP. In some cases, however, as discussed below, it is to the advantage of both parties to waive equalization because of the way CPP calculates benefits. It is unfortunate, therefore, that not all jurisdictions permit waiver.

To help former spouses to decide to waive the equalization, a simulation of the projected pension under the QPP, showing benefits before and after equalization, may be obtained from the Régie. I do not believe that a similar process is available for CPP.

Benefits under the Canada Pension Plan are determined by contributions made by the person from age 18 until age 65. The total benefits payable are determined by a formula based on each year's pensionable earnings - adjusted to take into account the fact that, with inflation, the pensionable earnings, and maximum required contributions, have increased over the years.

Entitlement to maximum CPP benefits, however, does not necessarily depend upon making maximum contributions in every year. Benefits are adjusted by dropping out specified years in which a person may not have been able to contribute fully. These drop out adjustments include:

(a) Lowest Years Dropout: 15% of the years in which lowest contributions were made,

(b) Child Rearing Dropout: years in which the person had a child under 7 (this is available only to the parent who was entitled to receive Family Allowance payments or the Child Tax Benefit), and

(c) Disability Dropout: years in which the person was entitled to receive CPP disability benefits. A person who is disabled may have other disability benefits which will reduce by the amount received under CPP, which may discourage an application for the CPP benefits (unless other benefit providers insist). However, an application for CPP disability benefits is essential in order to protect the disabled person's CPP payable at age 65.

Most often, when the parties have children, one parent will have substantially reduced CPP contributions for the years in which the children are younger. The Child Rearing Dropout will protect that parent, by excluding those years from the calculations. If that parent has CPP contributions in other years, the Child Rearing Dropout often protects that parent fully. In these cases equalization typically results in a reduction in one spouse's CPP benefits with no corresponding benefit to the parent who looked after the children.

Another situation in which CPP should not automatically be equalized (or where equalization should be delayed) is where one of the spouses is currently receiving CPP disability benefits. The disability benefit is based on a flat rate, plus an additional amount determined with respect to the spouse's unadjusted pensionable earnings. If equalization results in reducing the spouse's unadjusted pensionable earnings, it will cause an immediate reduction in the disability benefits, even if the other spouse cannot use the CPP entitlement until years later. In B.C., Alberta , Saskatchewan, and Quebec, it is open to the parties, or the courts, to waive division and protect the disabled spouse's benefits. In other jurisdictions, there is usually no way to protect the disabled spouse's benefits (except for the possibility of agreeing to postpone equalization). In Quebec, because judgements are automatically forwarded to the Regie, it would not be possible to defer equalization.

VIII. Pension Benefits Division Act

A. In force

The PBDA came into force September 30, 1994. The common-law partner provisions were introduced in 2000 by the Modernization of Benefits and Obligations Act, but these did not come into force until September 1, 2003. The discussion below provides a general overview of the PBDA.

B. Application

The PBDA applies to federal public sector pension plans, namely, plans established under:

Canadian Forces Superannuation Act

Defence Services Pension Continuation Act

Diplomatic Service (Special) Superannuation Act

Governor General's Act

Lieutenant Governors Superannuation Act

Members of Parliament Retiring Allowances Act

Public Service Superannuation Act

RCMP Pension Continuation Act

RCMP Superannuation Act, and

pension plans or retirement compensation arrangements established under the Special Retirement Arrangements Act

The PBDA applies only to the Acts listed above. A notable exception from the legislation is pensions for federally appointed judges. The PBDA does not apply to

- pensions established under provincial jurisdiction (except for the territories)

- federally regulated private sector pensions governed by the federal Pension Benefits Standards Act, or

- CPP or OAS.

C. Provides a Mechanism for Pension Division

The Act does not create a jurisdiction to divide pensions on the breakdown of a relationship. It operates when provincial legislation allows spouses to divide a pension as a family asset, and the spouses have their entitlement to the pension determined by an agreement or court order. In such a case, the PBDA provides the mechanism for dividing the pension.

D. Married and Unmarried Spouses

The Act applies to married spouses and to common law partners (of the same or opposite sex) when their relationship breaks up.

If there is no order of divorce, nullity or judicial separation, the Act will not apply unless the spouses have been living separate and apart for at least one year.

E. Making the Application

The application for division must be in writing. Each plan has its own forms. The application can be made by either the plan member or the spouse. The application must include a certified copy of the court order or the agreement dividing the pension. The non-applicant receives notice from the plan that the application has been made (but not the actual application, so personal information--such as the applicant's address--is protected).

The non-applicant has 60 days to file a notice of objection if

(a) the agreement or court order has been varied or is no longer valid,

(b) the pension entitlement has been satisfied by other means, or

F. Old orders and agreements

Pension division is available even if the agreement or order was made before the legislation came into force, but the agreement or court order must provide for a final, irrevocable share. Problems may arise, e.g., where the agreement or court order is variable, such as where division is by way of maintenance. Even where the agreement or order characterizes the division as a property settlement, terms that depart from the idea of a final division may cause problems, (such as, for example, an agreement that provides that the spouse is entitled to have the pension unless the spouse pre-deceases the member, in which case the whole of the pension reverts to the member).

G. Where a Member or Spouse has Died Before Division

An application can be made if the death occurred on or after September 29, 1992. If the person died before the PBDA came into force, the application had to have been made by March 31, 1996. If the death occurs after the PBDA came into force, the Regulations formerly provided that the application must be made within 18 months of the death, but this provision was found to be ultra vires in Smith v. Canada (A.G.) (1999), 22 C.C.P.B. 229 (Fed. T.D.).

H. Method of Division: Lump Sum Transfer

Once approved, a lump sum is paid out to the credit of the non-pensioned spouse. It is usually transferred to a retirement savings vehicle selected by the spouse . This method of division is available for matured and unmatured pensions.

The valuation is on a termination basis of benefits that accrue during the relationship, based on guidelines included in the Pension Benefits Division Regulations. However, there are aspects of a going-concern valuation (e.g. for plan members who are still employed, the potential entitlement to an early unreduced pension based on age and service thresholds is taken into account if applicable). These guidelines differ in many respects from the Standard of Practice for the Computation of Transfer Values from Registered Pension Plans and the Standard of Practice for Marriage Breakdown Computations, promulgated by the Canadian Institute of Actuaries. The valuation is relatively generous because in most cases the pension is indexed and the valuation takes the indexing into account.

The non-member is entitled to no more than half of the amount that accrues "during the period subject to division". In most cases, the spouse will be entitled to 50 per cent of the pension that accrues from the date cohabitation commenced to the date of separation. Post-separation accruals and pre-cohabitation accruals--i.e., accruals during times when the spouses were not cohabiting--are divisible only if a court so orders (see PBDA, ss. 8(2) and (3)).

If a member has already retired and is receiving the pension, the valuation will not include the pension payments that have already been made. The valuation includes future benefit payments only.

The court order or agreement may provide for the payment of a smaller lump-sum amount than calculated under the Regulations. If it provides for the payment of a larger lump-sum amount, any shortfall between this amount and the amount the PBDA allows to be transferred must be satisfied in some other way.

The transfer to the spouse is usually to a prescribed pension vehicle, such as an RRSP. This is not the case, however, for Retirement Compensation Arrangements benefits.

If there is a portion of the value that relates to Retirement Compensation Arrangements ("RCA") benefits, this portion is payable directly to the spouse, with tax withheld at source. It cannot be transferred to an RRSP even if the spouse has RRSP "room". RCA benefits are top-up or supplementary pension plans for high income earners in the public service. RCA benefits are currently applicable where the member's average salary is above about $120,000 or if the member received a waiver of early retirement reduction under the Early Retirement Initiative (ERI) program in effect between 1995 and 1998. The ERI was available to employees between 50 and 55 laid off from certain departments. There is no need to specify RCA benefits in the agreement or order. They will be divided automatically if applicable because they are linked to the benefits under the plan.

I. Estimating the Value

The plan administrator will estimate the value if it receives a written request. The value is referred to as the MTA (the "maximum transferable amount") in the plan's report.

Note that this valuation may produce the same value that would be placed on the pension (and on the spouse's share) by an actuary. The amount calculated under the PBDA is based on the plan experience for members with similar characteristics (i.e. gender, age service). Individual circumstances that may be taken into consideration by a private actuary, such as specific retirement plans or the plan member's state of health, are not taken into account under the PBDA. For example, an actuary takes the member's mortality into account. If the member's health is poor, that will affect the valuation. The PBDA valuation, however, is based on standard mortality tables, and does not take the member's actual health into account). Depending upon the circumstances and the factors taken into consideration, the value determined by a private actuary could be more, or less, than a PBDA value.

Where the transfer takes place after the member has retired, the amount transferred to the credit of the spouse may not be enough to purchase an annuity that will pay a monthly amount equivalent to what would have been received under a Rutherford-type benefit split. This occurs if

(a) the spouse is younger than the member, or

(b) if the spouse and member are the same age, the spouse is female.

In either of these cases, the spouse would be assumed to have a longer life expectancy than the member, so that the annuity pays a smaller monthly amount on the theory that it will be paid for a greater length of time. Another reason is that the interest rate assumptions for the annuity are more conservative than those used to value the pension benefits. As a result, purchasing an annuity is often not the option that produces the best financial result.

J. Tips and Traps

1. Methods for speeding up the process

Division under the PBDA is a slow process. The time from initial request to the actual transfer of funds to the credit of the spouse may take between 6 months to a year. In part, this is because of requirements under the Act that require notice be given to the member and that provide time for the member to object.

There are some options, however, for speeding up the process, or avoiding undue delay.

(a) Request division of the pension only

The process consists of two parts:

(a) a request for information about the maximum transferrable value to the spouse and

(b) an application for division of the pension.

Although it is usually prudent to request information concerning the value of the pension, it is not a precondition to division that step (a) be taken. It would be possible to simply file the forms for division of the pension.

(b) Have the member write a letter consenting to the division

When an application for division of the pension is made, the member is given 60 days to object. A letter from the member at that time advising that the member consents to the division and waives the 60 day period for filing an objection should allow the process to be completed more quickly. The RCMP Superannuation Plan has a form for waiver.

The member--or the spouse, if the member applied for division--can waive the right to object, but only after the notice has been received. The administrators of the PBDA need to be assured that the non-applicant spouse understands the grounds for objection, etc. before a waiver will be accepted. Similarly, an agreement or order may state that the non-applicant spouse will not object, but the PBDA administrators still provide that opportunity and still evaluate the merits of any objection that is made.

(c) Certified documents

When an application for a statement about the MTA is made, the application must be accompanied by specified documents--usually a certified copy of the marriage certificate and of the court order or agreement dividing the pension.

Theoretically, it is not necessary to send these documents in a second time, when the application for division is made, since they will be on file.

But the federal government is vast, and different sections may be responsible for (a) calculating the MTA and (b) carrying out the actual division. In these cases, documents sometimes go astray. When that happens, a month or two of additional delay is incurred, and a request will be made to the spouse to provide the additional documents.

It is good practice to have two copies of the necessary certified documents, and simply send copies in at each stage of the process.

2. Timing of the pension division and how it affects value

The value placed on the pension can change significantly over night because of the rules used for calculating the maximum transferrable amount. Either spouse can apply for division (once there is an agreement or court order dividing the pension). If a member is concerned that delay will affect the part the member keeps, the member does not need to wait and can apply on behalf of the spouse.

(a) How vesting affects a pension's value

When a pension "vests" it means that the member has satisfied the requirements under the plan to qualify eventually for a pension (even if the member ceased to be employed, a pension would be payable): SOR/94-612, s. 2.

The value of the pension after it has vested is significantly greater than before it has vested. If the member is not vested, the MTA is based on the contributions made during the period subject to division--placing a very low value on the pension. If acting for the spouse, it is important to wait until the pension is vested before applying for division.

The vesting rules vary from plan to plan--and can vary by type of member within a plan.

(b) How assumptions about retirement date

affect a pension's value

The value of the pension varies depending on how close to retirement the member is, and whether the member has retired.

The valuation of the pension before retirement is made based on information about when members of the plan take retirement. A pension, however, is typically worth more the earlier the member takes retirement. That fact is not reflected in the MTA. For example, if the pension is valued before retirement when the member is, for example, 55, the calculation will assume the member takes retirement at some later date. If the member, however, retires the next day, the actual value of the pension will be significantly greater than the valuation. (If, however the member postpones retirement after the date at which it is assumed members will ordinarily retire, delaying the MTA valuation of the pension will result in decreased values.)

This is a complicated area, and these comments must be understood as being of a general nature. While it is generally true that, all things being equal, a greater value is placed on the pension if the member takes early retirement than if the member continues in employment, there are exceptions. In some cases, for example, the valuation assumptions take into account the possibility that the member will qualify for an unreduced pension by working for several more years. If the member immediately retires with a reduced pension, the value would be lower. Under the Public Service Superannuation Act, for example, an employee who retires at age 55 with at least 30 years of service qualifies for a full pension (i.e. no reduction for early retirement). The probability of this occurring will be taken into account when valuing the pension of a 45 year old employee who has at least 20 years of service. However, if the employee terminates employment at age 45, entitlement to a full pension is delayed to age 60, which produces a lesser value.

Members in the midst of property division proceedings frequently want the spouse to receive the lowest amount of the pension possible--believing that means they keep more of the pension. However, after a pension has vested, the adjustments to the member's pension do not depend on the value assigned to the spouse's share-the member loses half the credited service, not its value. Whatever value is placed on the spouse's share, the member keeps the same amount of pension. Trying to reduce the value of the spouse's share by playing cards close to the chest about retirement plans, for example, merely results in benefitting the plan.

(c) Adjusting the member's pension

if division takes place before vesting

The member benefits if the division takes placed before vesting. If the spouse's share is based on the non-vested value of the pension (e.g. contributions and interest) and later the member becomes entitled to a pension, the member's pension is adjusted to reflect the amount paid, not the value of that service had the member been vested. If, for example, the non-vested amount was 1/3 of the vested value, the reduction to the member would be 1/3 x � of the pension for that period (i.e. 1/6) rather than � of the vested value.

After a pension has vested, it is usually in the best interests of the spouse and member for the spouse to receive the largest value possible on the share of the pension (this may, for example, reduce the spouse's support needs, or affect how other assets must be divided).

(d) How interest rate assumptions affect value

Changes in interest rate assumptions also affect value. This is not really a factor that can be predicted when timing the division of the pension. But it is important to be aware of this factor, since the value set out in the MTA statement may differ from the amount actually transferred because of changes in interest rate assumptions that have occurred between the making of the statement and the actual transfer date.

The assumed rate of return (minus inflation because the plan is indexed to the cost of living) is set monthly. It usually doesn't vary much from month to month but even a .25% change will make a noticeable difference.

(e) Summary

In short, before making an application under the PBDA, the lawyer for the spouse should

(a) ascertain whether the member's pension has vested and, if not, when it will vest, and

(b) inquire about the member's retirement plans,

to ensure that the application for division under the PBDA is submitted at the optimum time.

3. Common Mistakes to Avoid

(a) Application can only be made after the parties divorce,

or have been separated for one year

The way most matrimonial files proceed, it is rare to have a problem that arises from too prompt an application. However, occasionally the PBDA application is filed too soon.

The Act permits pensions to be divided only after

(a) the member and spouse have divorced (or their marriage has been annulled), or

(b) the member and spouse have lived separate and apart for at least one year (PBDA, s. 4(2)).

If the application is made too soon, it will be rejected.

(b) Severance is not divided under the PBDA

Various benefits are payable to persons in the public sector when they terminate employment (particularly to the RCMP and persons in the armed forces). Many of these benefits qualify as divisible family assets.

It is a relatively common mistake to assume that these benefits are taken into account in the valuation under the PBDA. The PBDA, however, does not provide a mechanism for dividing any benefits paid on termination of employment, other than the employee's pension. Arrangements for other benefits must be dealt with separately.

(c) Drafting the order or agreement

Orders or agreements providing for PBDA division are sometimes ambiguous when they provide for the transfer of a specific sum of money-usually the amount set out in the MTA. Is it intended to set an upper limit on what can be transferred?

If it is intended that the spouse receive the full value (i.e. the MTA), the agreement or order should not mention the estimated amount. This only serves to set an upper limit on what can be paid under the PBDA. It must be remembered that the MTA is only an estimate, and that the calculation may produce a higher or lower amount (for reasons discussed above). Setting out the specific amount will not ensure the spouse receives that amount if, for example, the MTA calculations at the time of transfer produce a lower value. On the other hand, if the calculations produce a higher value than the original estimate, including a specified amount would mean that the excess value of the spouse's share would not be transferred to the spouse.

If it is intended that an amount be deducted to compensate for some other asset being retained by the spouse, this is best accomplished by stating that the spouse is entitled to the MTA minus X dollars.

If both spouses are members of the plan and wish to have the entitlements equalized, it would be preferable to stipulate in general terms that one MTA is to be deducted from the other, rather than indicate a specific amount based on estimates. The problem with relying on estimates in this situation relates not only to the fact that the estimates may be inaccurate because they were done in the past but also that they would probably have been calculated on different dates, perhaps with different interest assumptions.

If interest is to be added to a lump-sum, this needs to be set out precisely in terms of the period (e.g. from the date of the agreement to the date of the PBDA payment), the interest rate, and method of calculation (e.g. compounded annually). Any provision for interest would be considered to form part of the lump sum and, therefore, any amount up to the MTA can be paid.

The agreement or court order should avoid specifying conditions on the valuation (for example, "value the benefits as of the date of separation," or "assume that the member will retire next year," etc.). The method of valuation is prescribed, so that any conditions that are inconsistent with the regulations cannot be taken into account. The valuation must be done in the prescribed manner. The parties would have to arrange for an independent valuation if they wished to arrive at a settlement on a different basis. They could then apply under the PBDA for payment of an amount up to the MTA.

(d) Survivor benefits

If the couple is not divorced and don't expect to become divorced, they should consider the impact of a division on survivor benefits. A separated spouse normally qualifies for the standard survivor allowance equal to approximately � of the member's pension but will not be eligible for benefits on that portion of the member's service in respect of which a division has been received. Therefore the couple may wish to forego the division or effect the division by some others means.

Once the couple divorces, however, survivorship benefits are no longer available to the former spouse.

Appendix A

Summary of Canadian Pension Division Legislation

Governing Private Occupational Plans

Alberta

1. Legislation: Employment Pension Plans Act, amended March 1, 2000.

2. Method: DCP, DBP: immediate settlement: transfer from plan to RRSP

DBP, if member within 10 years of normal retirement age (usually 65): either immediate settlement or deferred settlement (by benefit split, or separate pension)

Matured Pension: deferred settlement - benefit split (separate pension or commuted value transfer in discretion of plan administrator)

3. pre-marriage accruals: may be included.

4. post-separation accruals: may be included

5. value added or pro rata? pro rata

6. termination, retirement, or hybrid method: termination method

7 common law partners included? no

8. agreement or court order? order by an Alberta court, or a similar order by a court outside Alberta [minimum contents of order specified: period subject to division; the total pre-division benefit and the spouse's share]

9. 50% rule: can't exceed 50% of the benefit accrued during the marriage determined as of the date of division.

10. if member dies before pension divided: only an issue if spouse elect deferred division where member within 10 years of pensionable age

Note: Alberta issued a discussion paper considering changes to its pension division rules in 2003.

B.C.

1. Legislation: Family Relations Act, R.S.B.C. 1996, c. 128, Part 6

2. Method: DCP: immediate settlement

DBP: deferred settlement - lump sum transfer or separate pension

Matured Pension: deferred settlement - benefit split

3. pre-marriage accruals: court may include if fair having regard to listed factors

4. post-separation accruals: included up to "Entitlement Date": date parties make a separation agreement, or a court makes a declaration of irreconcilability, or an order of divorce or nullity.

5. value added or pro rata? pro rata for DBP and matured pensions; value added for DCP

6. termination, retirement, or hybrid method: retirement

7 common law partners included? not automatically, parties can agree or court can order

8. agreement or court order? agreement or order

9. 50% rule: member must retain at least have of the pension (determined at the date of division) unless the court otherwise orders.

10. if member dies before pension divided: spouse receives pro rata share of preretirement survivor benefits.

Note: the British Columbia Law Institute (the successor body to the B.C. Law Reform Commission) has just issued a report recommending changes to Part 6. The most important of these recommendations deal with: beneficiary designations; determining the spouse's share of preretirement survivor benefits; permitting a limited member a separate pension at any date after member becomes eligible to retire; adjusting the value of the separate pension if it is subsidized; and division of supplemental pension plans.

Manitoba

1. Legislation: Pension Benefits Act, C.C.S.M. c. P-32

2. Method: immediate settlement: transfer from plan to registered plan or pension plan; if matured, deferred settlement - benefit split of income stream

3. pre-marriage accruals: not included (and no jurisdiction to do so). Exception: since 2002, accruals from date parties commenced cohabitation are included (by agreement or, since 2004, automatically).

4. post-separation accruals: not included (and no jurisdiction to do so)

5. value added or pro rata? not specified (plan administrator's discretion)

6. termination, retirement, or hybrid method: termination method (assume member terminated employment at separation. Date of pension commencement determined by plan rules that apply to all terminated members).

7 common law partners included? yes (since 2002 by agreement. Automatically, since June 30, 2004)

8. agreement or court order? order or agreement. Division is mandatory, unless parties waive [prescribed forms], or agree on a set-off; legislation enacted, but not yet proclaimed, for the recognition of orders from outside province

9. 50% rule: 50% of accruals during relationship

10. if member dies before pension divided: not an issue [spouse or common law partner entitled to preretirement survivor benefits unless there is a division under s. 31(2) of the PBA, in which case, the survivor is entitled to the divided share of the pension instead]

New Brunswick

1. Legislation: Pension Benefits Act, C. P-5.1

2. Method: immediate settlement (DCP, DBP, matured pension): transfer from plan to RRSP (or to purchase deferred annuity)

3. pre-marriage accruals: not included (even where cohabiting) [Reg. s. 27(2) ?]

4. post-separation accruals: up to "marriage breakdown"

5. value added or pro rata? pro rata

6. termination, retirement, or hybrid method: termination method (assuming retirement at 65, unless the member is eligible for a pension, then it is the date the member first becomes entitled to an unreduced pension)

7 common law partners included? yes

8. agreement or court order? marriage contract or court order (including order from outside province)

9. 50% rule: 50% of pension determined as of the date of division.

10. if member dies before pension divided: not an issue

Newfoundland

1. Legislation: Pension Benefits Act, 1997, SNL 1996 c. P-4.01, Pension Benefits Act Regulations, Regulation 114/96, Part VII, "Marriage Breakdown"

2. Method: DCP: - immediate settlement if member not eligible for pension commencement at date of marriage breakdown

- deferred settlement if member eligible for pension commencement: separate pension commencing at that date

DBP: - if member not eligible for pension at date of marriage breakdown: immediate settlement (share of contributions plus interest)

- if member eligible for deferred, reduced pension: either immediate settlement (proportionate share of pension benefit), or deferred settlement, when member becomes eligible for unreduced pension

- if member eligible for unreduced pension at marriage breakdown: deferred settlement: separate pension commencing at that date

Matured

Pension: deferred settlement - separate pensions

3. pre-marriage accruals: yes (proportionate share is determined under regulations or by court order)

4. post-separation accruals: typically separation date (but up to "marriage breakdown" which may be another date specified in order or agreement)

5. value added or pro rata? pro rata for DBP; value added for DCP

6. termination, retirement, or hybrid method: termination if member not entitled to deferred pension at date of marriage breakdown; otherwise, retirement

7 common law partners included? no

8. agreement or court order? agreement or order, including an order made outside the province

9. 50% rule: 50% of pension as of the date of division

10. if member dies before pension divided: spouse receives pro rata share of preretirement survivor benefits [may be substantially reduced in value]

Nova Scotia

1. Legislation: Pension Benefits Act, s. 61, Pension Benefits Regulations, Part II, "Division of Pension Entitlement"

2. Method: DCP: immediate settlement, or deferred settlement (at any date after member becomes eligible for pension commencement)

DBP: deferred settlement - separate pension (or commuted value transfer) when member elects to have pension commence

Matured

Pension: deferred settlement - benefit split

3. pre-marriage accruals: yes under the MPA (but only accruals during cohabiting can be divided under the PBA: Morash)

4. post-separation accruals: typically separation date (but theoretically can be up to date of trial, or even final divorce)

5. value added or pro rata? pro rata for both DBP and DCP

6. termination, retirement, or hybrid method: retirement

7 common law partners included? yes, and domestic partners.

8. agreement or court order? agreement or order

9. 50% rule: member must retain at least half of the pension that accrued during the marriage.

10. if member dies before pension divided: spouse receives pro rata share of preretirement survivor benefits [may be substantially reduced in value]

Ontario

1. Legislation: Family Law Act; Pension Benefits Act;

2. Method: immediate settlement (equalization payment) [deferred settlement by "if and when" arrangement possible, but rare]

3. pre-marriage accruals: not included (and no jurisdiction to do so)

4. post-separation accruals: not included (and no jurisdiction to do so)

5. value added or pro rata? pro rata for DBP; value added for DCP

6. termination, retirement, or hybrid method: hybrid method (assume member terminated employment at separation and then predict the member's likely retirement date)

7 common law partners included? no

8. agreement or court order? agreement or order

9. 50% rule: 50% of marriage accruals. [Under the PBA, 50% of the value from date of marriage to date of separation based on termination method]

10. if member dies before pension divided: not an issue

Prince Edward Island

Similar to Ontario - since it also divides by an equalization payment.

Quebec

1. Legislation: Supplemental Pension Plans Act

2. Method: immediate settlement: transfer from plan to RRSP

3. pre-marriage accruals: not included (and no jurisdiction to do so).

4. post-separation accruals: typically from separation (but can be up to date legal proceedings commenced)

5. value added or pro rata? pro rata

6. termination, retirement, or hybrid method: termination method (assume member terminated employment as of commencement of proceedings commences pension at 65)

7 common law partners included? yes

8. agreement or court order? order(must also an order of divorce, civil annulment, or legal separation)

9. 50% rule: 50% of marriage accruals

10. if member dies before pension divided: not an issue

Saskatchewan

1. Legislation: Pension Benefits Act, 1992, S.S. 1992 , c. --6.001

2. Method: DCP, DBP: immediate settlement: transfer from plan to RRSP

DBP, if member entitled to unreduced pension: either immediate settlement or deferred settlement

Matured Pension: deferred settlement - benefit split (separate pension or commuted value transfer in discretion of plan administrator)

3. pre-marriage accruals: may be included.

4. post-separation accruals: usually no, but agreement or court order may include accruals up to the date made

5. value added or pro rata? not specified

DBP: (plan administrator's discretion Superintendent's preference: pro rata on service for final average, pro rata on benefits for career average, and either for flat benefit plans).

DCP: value added (but net investment returns on marriage date balance also divided).

6. termination, retirement, or hybrid method: termination method (s. 47)

7 common law partners included? yes

8. agreement or court order? agreement or court order

9. 50% rule: 50% of pension determined as of the date of division.

10. if member dies before pension divided: not an issue

Territories: North West Territories, Yukon, Nunavut

1. Legislation: federal Pension Benefits Standards Act, 1985

2. Method: immediate settlement (equalization payment)

3. pre-marriage accruals: subject to applicable family property legislation

4. post-separation accruals: subject to applicable family property legislation

5. value added or pro rata? subject to applicable family property legislation

6. termination, retirement, or hybrid method: subject to applicable family property legislation

7 common law partners included? yes, if entitled under applicable family property legislation

8. agreement or court order? agreement or order

9. 50% rule: no

10. if member dies before pension divided: not an issue

Appendix B

Glossary of Pension Terms

(This glossary is based on the glossary posted on the Saskatchewan Financial Services Commission website and used with permission. It is important to be aware that some of the definitions may be specific to Saskatchewan legislation However, the definitions are still useful as a starting point for understanding pension and pension division concepts. Additional definitions have been added. These are distinguished from the original list by the defined word being set out in lower case: e.g., "If and When Division" as opposed to IF AND WHEN DIVISION)

ACCRUED PENSION - amount of pension credited to a plan member according to service, earnings, etc., up to a given date.

ACTUARY - a professional in the pension and insurance fields responsible for calculating risks and premiums. In Canada, full professional recognition requires membership in the Canadian Institute of Actuaries.

ADDITIONAL VOLUNTARY CONTRIBUTIONS - contributions to a plan made voluntarily by an employee in addition to those contributions required to be made to attain a pension. Extra benefits may be purchased by additional contributions but no additional cost is borne by the employer. Additional voluntary contributions are not locked-in by legislation.

AD HOC ADJUSTMENT - amount added to a pension after retirement or termination to compensate for increases in the cost of living on an irregular basis and not as a result of a prior commitment or contract.

ADMINISTRATOR - the person or persons who administer the pension plan, i.e., who arrange for pension payments, funding of the plan, etc. For most plans, the employer is responsible for administration (although the employer may hire a third party to administer the plan on its behalf). Some plans are administered by a board of trustees or similar body.

ANCILLARY BENEFITS - benefits in addition to regular pension benefits and survivor benefits, such as bridging benefits and enriched early retirement benefits.

ANNUITY - periodic payments (usually monthly) provided by the terms of a contract for the lifetime of an individual (the annuitant) or the individual and his or her designated beneficiary. An annuity may be a fixed or varying amount, and may continue to be paid for a period after the annuitant's death.

ASSET MIX - refers to the proportions of various types of investments held by a pension fund, usually expressed as a percentage of total investments held in bonds, stocks, real estate, etc.

BENEFICIARY - a person who on the death of a plan member or former member, may become entitled to a benefit under the plan.

BENEFIT - generally, any form of payment to which a person may become entitled under the terms of a plan, but often refers specifically to the pension normally provided by the plan formula.

BENEFIT FORMULA - provision in a pension plan for calculating a member's defined benefit according to years of service and earnings, fixed dollar amount, etc.

BEST FIVE-YEAR AVERAGE - a benefit formula that determines the amount of a member's pension by applying the member's average earnings during the five years when earnings were highest.

BRIDGING BENEFITS - a temporary benefit provided to members who retire prior to the age when CPP benefits are normally payable (age 65) in order to supplement pension income until the CPP benefits are payable.

CAREER AVERAGE PLAN - a defined benefit plan that applies the unit of benefit to earnings of the member in each year of service, and not to the final or final average earnings.

COMMUTED VALUE - the amount of a lump sum payment payable today estimated to be equal in value to a future series of payments.

CONTINUOUS SERVICE OR MEMBERSHIP OR EMPLOYMENT - period during which an employee is continuously employed by the same employer or continuously participates in his or her employer's pension plan, including periods of temporary absence or suspension or periods of layoff. To be distinguished from credited service.

CONTRIBUTORY PLAN - a pension plan which requires the employees to make contributions by payroll deduction in order to qualify for benefits under the plan.

CREDITED SERVICE - length of service used in the plan formula to calculate a defined benefit.

DEFERRED MEMBERS - terminated employees who are eligible for a deferred vested pension. Considered by legislation to be former members.

DEFERRED VESTED PENSION - a specified pension determined at the time of termination of employment or termination of a plan but not payable until some later date.

DEFINED BENEFIT PLAN - a pension plan that defines the pension to be provided (based on service, average earnings, etc.) but not the total contributions. If the plan is contributory, the rate of employee contributions may be specified, with the employer paying the balance of the cost. To be distinguished from a defined contribution plan.

DEFINED CONTRIBUTION PLAN - a plan under which the amount of the employer contribution per plan member and, where applicable, the amount of the employee contribution is specified in advance and the benefits to be received by the pensioner is calculated at the date of retirement based on the accumulated contributions and the return on the investment of the contributions.

DIVISION OF PENSION CREDITS - also known as "credit splitting", a provision in a pension plan or pension legislation whereby one spouse on spousal relationship breakdown, may obtain a share of pension credits earned by the other partner during the spousal relationship.

ELIGIBILITY REQUIREMENT - a condition such as length of service that must be met before an employee is permitted or required to join a pension plan. Term may refer to the eligibility for certain benefits.

EMPLOYEE - means an individual, employed to do work or to provide a service, who is in receipt of or entitled to remuneration for the work or service.

EMPLOYER - refers to the person or organization from whom an employee receives remuneration, and includes any or all of the employers that are required to contribute to a specified multi-employer pension plan.

EMPLOYMENT PENSION PLAN - a pension plan offered by an employer or supported by a group of employers for the benefit of employees. The term includes plans covering employees of governments and the private sector, but does not include the Canada Pension Plan or other public programs.

ENRICHED EARLY RETIREMENT BENEFITS - a pension paid on retirement prior to the normal retirement date, which is not reduced to the extent it should be to fully account for the longer period of time over which the pension is likely to be paid.

FINAL PAY PLAN - a term commonly used for a pension plan in which benefits are based on earnings in a member's last years of service.

FLAT BENEFIT PLAN - a defined benefit plan that specifies a dollar amount of pension to be credited for each year of service.

FORMER MEMBER - means a person whose membership in a plan has terminated and who retains a present or future entitlement to a benefit pursuant to a plan. A pensioner would be considered a former member, as would a person who is entitled to a deferred vested pension. However, a person who transferred pension money to a Locked-in Retirement Account is not a former member because he or she no longer retains an entitlement under the plan.

FULLY FUNDED - a term describing a plan which, at a given time, has sufficient assets to provide for all accrued benefits.

FUNDING - systematic monthly payments into a pension fund which, with investment earnings on these funds, are intended to provide for benefits as they become payable.

GUARANTEED ANNUITY - an annuity which will be paid for the lifetime of a person or for a certain period whichever is longer, but in any event for a minimum period, e.g., if an annuitant with a five year guarantee dies after three years, payment will be continued to a beneficiary or the estate for two years.

"If and When Division" - a method of dividing a pension on marriage breakdown. Typically, the member is designated a trustee for the spouse and must pay the spouse a specified fraction of each payment received under the pension. Under pension division legislation, often this form of pension division is used for matured pensions, and the pension administrator will administer the division instead of the member.

INDEXING - a provision in a pension plan calling for periodic adjustments to benefits (usually after retirement) according to a formula based on a recognized index of price or wage levels such as the Consumer Price Index.

INVESTMENT MANAGERS - plan sponsors frequently are assisted by investment managers who help them decide how the pension funds should be invested. These managers are supervised by the plan sponsor.

INVESTMENT RETURN - earnings of a pension fund including interest, dividends, and capital gains and losses.

JOINT AND SURVIVOR PENSION OR ANNUITY - an annuity payable until the death of the retired employee, and continuing thereafter to the surviving spouse until that person's death. Required to be provided as an option at time of retirement.

LOCKING IN - legislative requirement that pension benefits cannot be withdrawn or otherwise forfeited on termination of employment if the employee is vested.

LOCKED-IN RRSP - see Locked-in Retirement Account

LOCKED-IN RETIREMENT ACCOUNT (LIRA) - an RRSP upon which certain contractual conditions have been placed. The key conditions include:

* money must be locked-in and must be used to provide a pension;

* non-assignable and exempt from seizure;

* pension payable at a specified age

"Life Income Fund or LIF" a registered plan under which the prescribed minimum and maximum annual withdrawal amounts are prescribed. Benefits in a Locked-in RRSP must be used by the owner no later than the end of the year in which the owner turns 69 and one is by transferring them to a LIF.

MEMBER - an employee on whose behalf an employer is required to make contributions to a pension plan and who has not terminated his or her membership or commenced his or her pension.

MONEY PURCHASE PLAN - see Defined Contribution Plan.

NEGOTIATED COST DEFINED BENEFIT PLAN - a defined benefit plan in which employer contributions are fixed (usually by negotiations) and benefits are not guaranteed.

NON-CONTRIBUTORY PLAN - a pension plan in which all required contributions are made by the employer.

NORMAL RETIREMENT DATE - the date at which the member becomes entitled to retirement benefits without reduction or increase.

"PBDA" - see Pension Benefits Division Act.

PENSION - generally any periodic payment payable for the lifetime of a person who has become entitled to such a benefit pursuant to the terms of a pension plan.

"Pension Benefits Division Act" - the federal legislation that governs the division of federal public sector pensions.

PENSION PLAN - a plan, scheme or arrangement organized and administered to provide pensions for members and former members pursuant to which an employer is required to make contributions.

PLAN SPONSOR - refers to the employer sponsoring the pension plan for employees.

PORTABILITY - options available to certain members on termination of employment.

REGISTERED RETIREMENT INCOME FUND (RRIF) - a prescribed retirement arrangement that can be established with funds locked-in by pension legislation.

REGISTERED RETIREMENT SAVINGS PLAN (RRSP) - a personal retirement savings plan as defined by the Income Tax Act.

RETIREMENT - withdrawal from the active work force because of age; may also be used in the sense of permanent withdrawal from the labour force for any reason, including disability.

RETIREMENT INCOME - income from pension and other sources to which a retired person is entitled. Term may include both private and public pension payments, income from personal savings, government income supplements and certain other sources of income.

SPECIFIED MULTI-EMPLOYER PENSION PLAN - a plan that is administered for employees of two or more employers and that is specified by the superintendent of pensions as a specified multi-employer plan. Generally refers to a plan in which the employee-employer relationship is not well defined. For example, in some construction trades, workers are employed for a particular job as opposed to being hired by a particular employer on an indefinite basis.

SOLVENCY DEFICIENCY - refers to a shortfall in a plan's assets relative to its liabilities at a particular point in time assuming that the plan was terminated at that point.

SOLVENCY RATIO - the ratio of the market value of the plan's assets to its liabilities as measured on a plan termination basis.

SUBSIDIZED EARLY RETIREMENT BENEFITS - see enriched early retirement benefits.

"Supplementary Pension Plan" - an unregistered plan integrated with a registered plan to pay benefits that exceed the Income Tax Act ceilings on benefits payable under a registered plan.

SUPERINTENDENT OF PENSIONS - a person charged with the administration and enforcement of The Pension Benefits Act, 1992.

SURPLUS - if a pension plan's assets exceed the plan's liabilities, the difference is called a surplus.

SURVIVOR PENSION OR SURVIVOR BENEFIT - a monthly benefit payable under a pension plan to the surviving spouse of a deceased member or former member.

TERMINATION OF MEMBERSHIP OR EMPLOYMENT - severance of the employment relationship for any reason other than death and retirement.

TERMINATION OF PLAN - this occurs when a pension plan ceases to operate. All members are vested and entitled to receive a pension.

UNFUNDED LIABILITY - any amount by which the assets of a pension plan are less than its liabilities on a going concern basis.

UPDATING (BENEFITS) - a term applied to the occasional review and increase of accrued benefits to reflect rising wage levels where the plan does not provide for automatic improvements as in final earnings formula.

VESTED BENEFITS (VESTING) - benefits to which an employee has unconditional entitlement under the plan as a result of satisfying age or service requirements.

YEAR'S MAXIMUM PENSIONABLE EARNINGS (YMPE) - term used in the Canada Pension Plan which refers to the earnings from employment on which CPP contributions and benefits are calculated. YMPE is changed each year according to a formula based on average wage levels. YMPE is published annually by Human Resources Development Canada's Income Security Division.