There are several situations in which a plan member may receive a value for their pension benefits from their pension plan administrator. In most cases this value represents the maximum amount of money that can be transferred from the pension plan to the non-member spouse to assist in property settlement. The transfer value is typically calculated assuming termination of membership in the plan and in many cases this results in an unfairly low value being assigned to the pension from an economic/actuarial perspective. In New Brunswick, however, it seems that the commuted value of the pension is accepted as the correct value of the pension for the purpose of property settlement on marriage breakdown.
Be aware, as outlined below, that the value that is provided by the pension plan administrator on marriage breakdown is calculated differently depending on the regulatory jurisdiction of the pension plan (i.e. federal government employees are provided with a value on marriage breakdown that is not consistent with the value provided by any other pension plan administrator). As a result, if the couple simply uses the value of the pension as provided by the pension plan administrator, the values provided from different pension plans may be inconsistent with each other and result in a unfair settlement. For more information on your specific situation, click on the link below:
- Federal government employee
- Federally regulated pension plan (i.e. banks, airlines, railways)
- New Brunswick regulated pension plans (the majority of pension plans in New Brunswick)
Federal Government Employee
Federal government employees who are members of any of the federal public service pension plans where the Pension Benefits Division Act applies (i.e. federal public service employees, Canadian forces, RCMP, members of parliament) may apply to the pension plan administrator to have a portion of their pension benefits transferred out of the plan to their spouse. The maximum value of the pension that can be transferred out of the plan to the spouse is referred to as the Maximum Transfer Value (the “MTV”). The MTV under the Pension Benefits Division Act is not calculated based on a member’s individual circumstances; it is based on the retirement/termination experience of the plan. In addition, the MTV is calculated using different assumptions than those specified by the Canadian Institute of Actuaries for pension valuations on marriage breakdown. Consequently, the MTV is not necessarily a fair value of the pension and may be higher or lower than the fair value of the pension from an economic or actuarial perspective. Unlike the values provided by the pension plan administrator in almost every other situation, however, the MTV is not calculated by assuming that the member terminates employment and for many members the MTV can be similar to, or even exceed, the fair value of the pension. Additionally, unlike other pension division processes, when the member retires the reduction in their pension is calculated based on the amount of pension earned during the division period and not on the lump sum amount that was actually transferred to the spouse (although a transfer of less than the full MTV will result in a smaller reduction in the member’s pension as the reduction is pro-rated in this case). This means that if a lump sum is paid to the spouse and the member retires before/(after) the typical plan member (which is how the MTV is calculated) then the plan will gain/(lose) money as a result of the transfer to the non-member spouse; it is not the plan member who will lose or gain since the reduction in their pension is based on the amount of pension that has been divided and not on the actual value of their pension at retirement.
The purpose of the Pension Benefits Division Act and the MTV is to provide the couple with a way to settle their pension assets, not with the goal of providing a fair value for property purposes. The MTV can vary substantially depending on the calculation date (the valuation is only done when the transfer is requested). The Pension Benefits Division Act permits a member to transfer up to 50% of the MTV to their ex-spouse. Note that the MTV will generally result in a subtantially higher value for a given pension than the commuted value (as is calculated for federally regulated pension plans and Manitoba regulated pension plans). Consequently, in most cases, it would not be fair to use the MTV for property settlement purposes if the commuted value is being used for other pensions (click here for more information).
Federally regulated pension plans
Pension plans for certain industries under federal jurisdiction such as those of banks, railways and airlines are regulated by the federal Pension Benefits Standards Act. This Act has provisions that deal with the division of pensions on marriage breakdown which permit the transfer of a lump sum value from the pension plan to the ex-spouse. Provincial law applies to these federally regulated pensions to some extent, but the relationship between federal and provincial law has not been completely worked out. It is not clear whether these federally regulated plans are required to follow provincially specified pension division schemes; many of the federally regulated pension plans have established nationwide administration policies which are consistent with the pension division provisions under the federal Pension Benefits Standards Act, and refuse to follow provincial pension division rules.
The value that is permitted to be transferred to the non-member spouse under the federal Pension Benefits Standards Act is calculated by assuming that the member terminates from the pension plan at the date of separation and is referred to as the ‘commuted value’; the commuted value of a member’s pension is calculated in accordance with a specific standard of practice of the Canadian Institute of Actuaries (which is different than the standard of practice for determining pension values on marriage breakdown). This is consistent with the value provided by the plan administrator of a New Brunswick regulated pension plan (see below).
The Pension Benefits Standards Act permits a transfer of up to 100% of the commuted value of a member’s pension benefits to their ex-spouse; the spouse’s share of the fair value of the member’s pension will likely be less than the maximum possible transfer, and a transfer of less than the maximum is the norm.
New Brunswick regulated pension plans
The value that is provided by the plan administrator of New Brunswick regulated pension plans is the value of the member’s pension assuming termination of membership in the pension plan and does not include any future increases in the pension or any unvested early retirement benefits in accordance with the Pension Benefits Act of New Brunswick. (click here for more information on the pension division options available). The commuted value of a member’s pension is calculated in accordance with a specific standard of practice of the Canadian Institute of Actuaries (which is different than the standard of practice for determining pension values on marriage breakdown). Although the commuted value is often the lowest value that can be assigned to the pension, it appears to be accepted as the value of the pension for property settlement purposes in New Brunswick (click here for more information).
Be aware that if a federal government pension and a New Brunswick pension is involved (see above), some type of adjustment would need to be made to the value of one or both of the pensions to make them comparable (click here for more information).