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Monday, August 12, 2013

Pensions - What happens to my plans for retirement?

Week Four:  Pensions

by Kimberly Soul and Alison Bennet

Pensions are an important asset, not to be overlooked upon separation. Like all other assets that accumlate while in the relationship, these too must be shared and/or divided.  The rule of thumb is that one half of the increase in value of a party’s pension during the relationship is shareable with that party’s spouse or common law partner; there are some differences between plans which impact how they are divided. 

The first step, as with any other asset, is to figure out its value.  Often, the Pension Plan Administrator will complete this calculation at no cost.  It is important that prior to contacting your Pension Benefits Administrator that the parties agree on the date of cohabitation and date of separation as these dates will be used to calculate the amount of the entitlement. Often Pension Benefits Administrators will not redo the calculation if the date of cohabitation and date of separation change. The calculations are complex actuarial calculations and typically we have found that clients are only able to obtain one calculation.  In some cases, it is necessary to obtain the services of an actuary to calculate the value of the asset. 

Federally regulated employment pensions are deemed property and shareable pursuant to The Pension Benefits Standards Act.  The value of the asset is then included in the family property accounting along with all other assets.  This legislation sets out that the division of the pension can be done in any amount. For example: if one party’s entitlement is $10,000.00 but pursuant to the other property accounting the party is only receiving $4,000.00, the parties are permitted to conduct a transfer of $4,000.00. It is common practice to include the value of a federally regulated pension in the parties’ Family Property Act accounting. In addition, with federally regulated pensions a party waiving their interest to their entitlement does not need to know the exact amount of their entitlement to effectively and legally waive their interest. This is not the case with provincially regulated pensions.  It is of course recommended that you never waive your interest to any asset without knowing what it is worth.  Once the accounting of assets is completed, and included as part of a separation agreement or court order, it normally cannot be changed.  Because federally regulated pensions do not have to be divided equally, as part of the negotiation process the parties may balance part of the value of the pension against other assets.

The Pension Benefits Division Act applies to certain federally regulated pensions such as pension plans provided by Public Service Superannuation Act, Canadian Forces Superannuation Act, Royal Canadian Mounted Police Superannuation Act to name a few. The transfer of funds to one party must be in an amount equal to their entitlement which is similar to The Pension Benefits Act.

The Pension Benefits Act applies to provincially regulated pensions in Manitoba. A party waiving their entitlement to a pension governed by The Pension Benefits Act must sign a Pension Benefits Spousal/Common Law Agreement and obtain Independent Legal Advice. In addition, the party waiving their interest must know the exact amount of their entitlement. The party opting out of receiving their entitlement to the other party’s pension must be provided with a statement showing their entitlement, called a commuted value statement. A commuted value statement can be requested from a Pension Benefits administrator. The transfer of funds of an entitlement to a provincially regulated pension can only be done if the full entitlement is being transferred. For example: if one party’s entitlement is $10,000.00 but the parties have negotiated a resolution and they’ve agreed that only $4,000.00 is to be transferred – this transfer would not be able to occur. The Pension Benefits Act prohibits the transfer of any amount except the exact amount of the entitlement as set out in the Commuted Value Statement (plus the interest accrued).

The Pension Benefits Standards Act, The Pension Benefits Act and The Pension Benefits Division Act all apply to married persons and common law relationships but vary in their definition of a common law relationship.

Pursuant to The Pension Benefits Division Act a common-law partner “means a person who establishes that the person is cohabiting with a member of a pension plan in a relationship of a conjugal nature, having so cohabited for a period of at least one year”.

Pursuant to the Pension Benefits Act of Manitoba, a common law partner is defined as follows:

"common-law partner" of a member or former member means

(a) a person who, with the member or former member, registered a common-law relationship under section 13.1 of The Vital Statistics Act, or

(b) a person who, not being married to the member or former member, cohabited with him or her in a conjugal relationship

(i) for a period of at least three years, if either of them is married, or

(ii) for a period of at least one year, if neither of them is married;

 

As a result of this definition if neither party is married but only cohabitated for one year, one half of the increase in value of the pension is shareable. If either person is married the pension is not shareable until they have cohabited for three years.

Pursuant to The Pension Benefits Standards Act, a common-law partner is “in relation to an individual, a person who is cohabiting with the individual in a conjugal relationship, having so cohabited for a period of at least one year”.

Canada Pension Plan credits are handled a bit differently. These are shareable between married persons and persons that have cohabitated together in a conjugal relationship for at least one year. Currently in Manitoba, parties are not permitted to enter into an agreement not to divide their pension credits between them. Canada Pension Plan will not abide by an agreement between parties not to share in each other’s pension credits unless the agreement was signed before June 4, 1986 and specifically sets out that Canada Pension Plan credits are not to be split. 

 

Posted by Alison Bennet at 1:23 PM 0 Comments

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