Members of Ontario regulated pension plans can request the value of their pension on marriage breakdown from their plan administrator (they do not need to retain an independent actuary). At their option, the plan administrator can charge a fee of up to $600 plus HST for the valuation a defined benefit pension, $200 plus HST for the valuation of a defined contribution pension and $800 plus HST for the valuation of combination plan which includes both a defined contribution portion and a defined benefit portion.
An immediate division of a member’s pension benefit can occur; the plan administrator needs a completed separation agreement or court order. The division of the pension benefits is optional. The division does not have to occur – a plan member can buyout their spouse with other assets and keep their full pension.
- A member who is not retired at the date of separation can have the pension benefits they earned during marriage divided with an immediate lump sum paid from the plan to their spouse. Generally speaking, the payment cannot be taken as cash and must be transferred to one of the prescribed vehicles (i.e. locked-in RRSP).
- A member who is retired at the date of separation can have a portion of their pension payment paid to their spouse. A lump sum payment is not permitted.
If an Ontario member elects to have their pension divided, their pension will be reduced:
A pension reduction is calculated based on their accrued pension at separation (i.e. frozen earnings and service).
The pension accrued at date of separation is:
- pro-rated based on service earned during marriage, and
- pro-rated if an amount less than the full Ontario family law value is transferred.
The pension reduction is indexed after separation by any contractual inflationary increases provided to deferred pensions. At retirement/termination/death, the member’s accrued pension is reduced.
The member and their spouse can agree to divide the pension or to not divide the pension; if the pension is not divided, the non-member spouse should receive assets of equivalent value to the pension in exchange. For members who are not retired at the date of separation, the non-member spouse may prefer a buy-out since they will typically receive assets or funds which are not locked-in (the pension funds are typically locked-in and cannot be accessed prior to retirement).
There are certain situations in which there will be an optimal strategy for the plan member:
- For example, in most cases an active member with substandard mortality should have a lump sum paid to spouse (the lump sum paid to the spouse is worth more than the future pension payment to member – the pension plan loses money by paying out the lump sum).
- Members who intend to retire early will typically be better off keeping their full pension (i.e. they should agree to buyout their spouse, if possible).
- Members who intend to retire late will typically be better off electing to have their pension divided (i.e. they should agree to a division of their pension by the plan administrator, if possible).
Can an Independent Actuary Provide a Valuation of an Ontario Regulated Pension?
The law requires the value to be provided by the plan administrator of an Ontario regulated pension plan, if requested (not an independent actuary). However, an independent actuary can provide a valuation of an Ontario regulated pension plan. There are, however, situations in which an independent valuation may make sense, click here for more information.
What if a Plan Member Needs a Pension Valuation Quickly?
The law in Ontario provides an administrator with 60 days to provide the family law value after it has been requested. If an Ontario member does not want to wait until the plan administrator provides the value or can’t wait (i.e. closing on a new home), they can request that the plan administrator provide the value quickly. Since the plan administrator is not legally obligated to this, many may not accommodate these requests. If requested, we will provide a pension valuation for an Ontario regulated pension plan. However, there are several issues with having an independent actuary provide a valuation for an Ontario regulated pension plan:
- Only the plan administrator can divide the pension, so an independent valuation will not permit a division of the pension. Other assets will need to be traded against the pension.
- The value provided by the independent actuary will not be exactly the same as the value provided by the plan administrator due to some possible differences in calculation methodology and assumptions; in most cases the values should be very close.
- If a division of the pension is desired in the future, the value will need to be requested from the plan administrator and the regular process followed (which includes paying any fees required by the plan administrator).
For additional information on requesting a pension valuation, click here.
Does the Ontario Family Law Value from the Plan Administrator Need to be Verified?
In the vast majority of cases, the value provided by the administrator will likely be correct, so generally speaking this is not necessary. However, there is always the possibility of errors which do inevitably occur in some cases, so a verification by an independent actuary could provide piece of mind, especially in cases where there are concerns about the value being too high or too low.