| 15.1 Waiving the admin. fee? | The legislation sets out maximum amounts that may be charged by a plan to offset costs of dividing a pension: $1000 for registering a former spouse as a limited member of the plan; and $200 for transferring benefits from a defined contribution account. If the benefits are in a hybrid plan, and the administrator is required to do both, the fee would be $1200. Does the plan have to charge the administrative fee? |
| No. It is not mandatory to charge a fee. The FLA sets out the maximum that can be charged if the administrator decides to charge a fee. [FLA, s 140(1)(a); Reg., s 28] Some administrators see this as a service that should be made available to members. Clearly, not all members will benefit from this service equally (since not all members are in a relationship and not everyone’s relationship breaks up). But plans provide other kinds of services and benefits even though not all members will take advantage of them. Under the FRA, some administrators did not charge an administrative fee, and some administrators recognized situations where the fee, or part of it, would be waived. Similar policies have continued to apply under the FLA. | |
| 15.2 When to waive fees | In what circumstances would it be appropriate to waive the administrative fees? |
| Examples of situations where some administrators have waived the fee: where the application for division is late in the life of the pension (for example, the member took a single life pension and, at the time the Forms are received, the guarantee period has expired);where the member acquired benefits under two or more related plans that are being divided. In these cases, many administrators would charge just one administrative fee. The examples are not exhaustive. |
Table 5—Time limits for discharging administrative obligations
| Administrator’s Obligation | Time for completing | |
| 1 | Member gives administrator direction with respect to benefits. If Form P1 on file, or former spouse is limited member, administrator must notify former spouse. [Reg., s 9(1)] | Former spouse must receive 30 days advance notice before administrator acts on the direction. |
| 2 | Administrator advised of member’s death. If Form P1 on file, or former spouse is limited member, administrator must notify former spouse. [Reg., s 9(1)] | Former spouse must receive 30 days advance notice before administrator acts on the direction. |
| 3 | Administrator receives documents and prescribed Forms from former spouse. Administrator must notify member using Form P6 [Reg., s 7(1)] | 30 days of receiving document from former spouse. |
| 4 | Administrator cannot act on document received from former spouse. Administrator must notify former spouse and member using Form P6 explaining why and what is required [Reg., s 7(2)] | 30 days of receiving document from former spouse. |
| 5 | Implement division of benefits under a matured pension, annuity or disability benefits. [Reg., s 15] | Begins with benefits payable on or after the 30th day after receiving all required documents. |
| 6 | Register a limited member and confirm registration to former spouse and member [Reg., s 16(a)] | Within 60 days of receiving all required documents. |
| 7 | Transfer funds from defined contribution account [Reg., s 16(b)] | Within 60 days of receiving all required documents. |
| 8 | Start payment of separate pension [Reg., s 16(c)] | Within 60 days of receiving all required documents. |
| 9 | Transfer funds from plan that uses a benefit formula provision [Reg., s 16(d)] | Within 60 days of receiving all required documents. |
| 15.3 Charging the fee: when information is requested? | The administrator has just received a request for information from a former spouse who wants to be able to value the pension benefits. Can the administrator demand payment of administrative fees before the information is provided. |
| No. The administrator is required to provide requested information to a spouse upon receipt of a valid Form P1, which tells the plan that the spouse is claiming an interest in the member’s benefits. Administrative fees should not be charged until the administrator is asked to take a positive step in dividing the pension benefits. The fee could not be charged on receiving Form P1 because the benefits may end up being divided in other ways that do not involve the plan. | |
| 15.4 When to charge the fee | If the administrator intends to charge an administrative fee, when should it be charged? |
| The correct time to charge the fee is: when a Form P2 is received to register a former spouse as a limited member; andwhen a Form P3 is received to transfer a proportionate share from a defined contribution account. The FLA provides that the administrator must deduct the fee from the payment of benefits unless the fee is paid by the member or spouse or both. [FLA, s 140(3)] See para 15.9. | |
| 15.5 Parties are willing to pay the admin. fee in advance | We are prepared to provide the parties with a valuation of the benefits, but we need to charge the administrative fee to cover our costs of the valuation. Can we accept the administrative fee from the parties before they file a Form P2 or P3 if they are prepared to pay that in advance? |
| There is nothing in Part 6 that prohibits the parties from voluntarily paying the administrative fee in advance. However, an administrator should be reluctant to arrange for an actuarial valuation before the benefits are actually going to be divided. It often takes the parties a very long time to finalize pension division arrangements and, even if the valuation is useful at the time it is made, valuing pension benefits is often a moving target. The valuation may be out of date by the time that the benefits are to be divided, meaning that a second valuation must be arranged, and the costs of that valuation incurred again. | |
| 15.6 Who is billed? | Who should be billed, the member or the spouse? |
| Each party is responsible for half of the fee. [FLA, s 140(1)(b)] If an administrative fee is not paid with the application, the administrator must deduct the fee from the payment of benefits. [FLA, s 140(3)] See para 15.9. | |
| 15.7 Parties refuse to pay the administrative fee | Can the administrator refuse to register the spouse as a limited member until it is paid the administrative fee? |
| No. The administrator is required to register the former spouse as a limited member within 60 days of receiving the required materials (Form P2, the agreement or court order dividing the benefits, and other documents reasonably required by the administrator with respect to the registration). If the fee is not paid at the time that the required materials are provided, the administrator must deduct the fee from the benefits payable to the member and the limited member. [FLA, s 140(3)] | |
| 15.8 Paying the administrative fee to the plan | Does the administrative fee have to be paid to the administrator? Can the sponsor collect it on behalf of the plan? |
| The legislation does not require an administrative fee to be paid, and there is no prohibition on an administrator requiring that the administrative fee be paid to a third party, such as the plan sponsor. | |
| 15.9 Paying by installments or deducted from benefits | Can the administrator permit the administrative fee to be paid by installments or by deductions from pension benefits?[SN1] [GU2] |
| The administrator may permit the administrative fee to be paid by installments. The administrator is required to deduct the fee from the payment of benefits unless the fee has been paid by the member and/or spouse. [FLA, s 140(3)] |
| When the pension has commenced, the administrative fee can be deducted from the monthly payments to each of the parties. In this case, it is important to note that the benefits are subject to tax in the hands of the member and former spouse. If $500 is deducted from each party’s share, each will end up having to pay taxes on the $500, so they end up paying more than $500. The administrative fee is not a tax-deductible expense: see para 15.11. If the parties to select this option, the administrator should advise them about the tax position. They may prefer to make the payment from some other source. Similarly, if the former spouse is permitted and decides to have benefits transferred from the plan, s 140(3) permits the administrator to agree to deduct the administrative fee from those benefits. Again, however, there would be tax payable on the deregistered benefits. | |
| 15.10 GST | Are the administrative fees subject to the GST? |
| When pension division legislation was first enacted in B.C. in 1995, this question was raised with the federal government, which provided a non-binding interpretation that GST was not chargeable. To date, this remains CRA’s position. | |
| 15.11 Income tax | Is the administrative fee tax deductible? |
| CRA took the position that the administrative fee was not tax deductible under the FRA, and the same position continues to apply under the FLA. | |
| 15.12 Income Tax Act and the admin. fee | Does paying an administrative fee offend the Income Tax Act? |
| No. The payment cannot be characterized as a “contribution” to the plan and cannot be used as a deductible expense from the payer’s income tax. The[SN3] [GU4] Registered Plans Directorate of the Canada Revenue Agency, however, indicated that under the FRA it was acceptable as a payment to offset administrative costs,[SN5] provided the payments were not made through the plan itself, and it is expected that the same position will apply under the FLA. |
| 15.13 Administrative fee not paid before spouse’s death | The spouse sent in Forms P1 and P2 with an agreement dividing the pension benefits. The spouse couldn’t afford to send in $1000 to pay the administrative fee at the time they submitted the P2. The spouse has now died. What are the rights of the spouse’s estate? |
| In this case, there is a valid agreement. Part 6 sets out administrative rules to protect the plan administrator, but failure to pay the administrative fee does not affect the property right itself: see Martens v Martens, 2009 BCSC 1477, which dealt with a similar administrative issue arising after the death of the member, and paras 8.7 and 13.14. The plan should transfer the spouse’s share to the spouse’s estate. Unless other arrangements are made, the member’s and the spouse’s portions of the administrative fee should be deducted from the benefits payable to them. See paras 13.24 and 15.7. | |
| 15.14 Administrative expenses exceeding the fee | In addition to the maximum administrative fee that can be charged to a spouse and a member, can additional expenses required to administer the routines surrounding “limited membership” be charged to the pension fund (provided the pension plan allows for this)? |
| The administrative fee referred to in the legislation and the Division of Pensions Regulation represents the maximum amount that can be collected from the former spouse and the member. Additional costs incurred in dividing the benefits—such as actuarial fees—could not be charged to the spouse or member nor deducted from the member’s benefits. Similarly, the plan could not require member and spouse to carry out at their own expense duties that the legislation places on the administrator. But the legislation in no way restricts arrangements made between sponsor and plan concerning how general administrative costs are borne by the whole of the pension fund. | |
| 15.15 Phased retirement | Reg., s 19 deals with recalculating a limited member’s proportionate share after a period of phased retirement. What kinds of issues is this addressing? |
| The old rule used to be that, once a member’s pension commenced, no more benefits could be accrued by that member. |
| In contrast, an administrator is required to send specified information annually to a spouse who is registered as a limited member, whether or not a request is made. [Reg., ss 10 and 11] Reg., s 11(1)(a) refers to sending the limited member any information or notice available to members of the plan, which seems very broad, but this has been interpreted in practice as not extending to copies of information or notices that have nothing to do with the benefits that are being divided. Obviously, there may be some close judgment calls. A limited member would be entitled to copies of information or notices given to the member that would directly or indirectly affect the limited member’s entitlement (such as, for example, opportunities to acquire additional entitlement, information about proposed plan conversions, and so on). A limited member who is in receipt of a separate pension or is a limited member with a separate defined contribution account, is only entitled to information about the separate pension or the limited member’s defined contribution account. [Reg. s 11(2)] If a spouse files a Form P1 and requests information about the benefits, the administrator must provide the information within 60 days after receiving the written request. [Reg., s 10(1)] | |
| 15.20 Repeated requests for information | The plan administrator is receiving repeated requests for information about the same pension benefits. Does the legislation place any limits on when information may be requested? |
| The administrator is required to provide information only once in each calendar year. [Reg., s 10(3)] However, the former spouse can request an update on the information, but again only once in the calendar year. [FLA, s 10(2)] The legislation is designed to protect the plan administrator from being pestered. But an administrator should not insist upon strict compliance with this right where the protection is unnecessary. For example, the spouse and member negotiate a settlement under which the member will make a compensation payment to the spouse, and the spouse will waive all claims to the member’s pension benefits. The spouse received information from the plan 6 months before and would like an update to make sure the compensation payment is accurate. |
| The plan gains nothing from adhering to its right to provide information only once a calendar year. The Division of Pensions Regulation should not be used to destroy sensible negotiations. If an administrator declines to provide information, it is still open to the court to order that information be provided more than once in a year. [FLA, s 133(2)] Similarly, a follow-up request by a former spouse to explain information that the plan provided, or to request information that has not already been provided, would not be subject to the one-request-per-year limitation. It is perfectly acceptable for the spouse to request, for example, a copy of the plan member’s most recent annual statement and then, at some later date, request a plan summary or other pertinent information not already provided by the administrator. | |
| 15.21 Kinds of information | We have just received a Form P1 with a letter from the spouse’s lawyer saying, “we look forward to receiving information from you”. The letter does not indicate what information is required. What information does the administrator have to give? |
| Division of Pensions Regulation, s 10(1) lists the required information. The administrator must provide the spouse with a copy of the most recent annual statement about the member’s pension benefits. If a copy of the annual statement is not available, the administrator must prepare a current statement showing contributions to date and earned service. If not included in the annual statement, the following information is also required: any additional information necessary to value the benefits or finalize the division of the benefits (if the plan is using the average age of retirement for pension division purposes, then information about the average age of retirement would also be required);whether the spouse is the beneficiary of the member’s benefits;if the pension has commenced, information about survivor benefits payable under the pension, whether they are payable to the spouse, and whether a change of spousal status affects entitlement (although, in B.C. |
a change in spousal status would not affect entitlement since PBSA, s 81(2) came into force: see para 8.9);
- if benefits are based on the member’s income for a particular period, information about the member’s income for that period;
- any information or notice provided to the member after the Form P1 was filed with the administrator;
- information about benefits transferred to the plan, or from the plan, on behalf of the member after the Form P1 was filed, or within 2 years before it was filed; and
- information on options and elections available to the member, or a limited member, with respect to the benefits.
Including a copy of the most recent explanation or summary of the plan will often be very useful for the parties and reduce the amount of follow up requests for information.
Reg., s 10(1) is helpful, but this is not a new issue. Pensions have been divisible in B.C. since 1979. Administrators have close to 4 decades of experience with this kind of issue. Also, in many cases, the spouse will retain an actuary, who will deal directly with the plan administrator and will indicate precisely what information is required.
Reg., s 10 provides minimum standards for what must be disclosed. There will be circumstances where the plan will be aware that members and limited members will benefit by being alerted to special features of the plan.
For example, it may be the case that the value placed on the limited member’s share of benefits will increase if the limited member postpones applying for the share for a short period (to avoid, for example, an early retirement reduction). There would be no statutory penalty for a plan failing to provide this advice. But the law is developing where there is a duty of good faith that an administrator owes plan members with respect to retirement counseling, which would apply equally to a limited member, and there have been cases where the plan has been found liable for failing to discharge those duties. Consequently, if the plan is aware of information that would be valuable to the limited member, it should be communicated to the limited member if possible. See paras 2.61 and 2.68.
| For example, if the plan has a target benefit provision, disclosure of the targeted nature of benefits is part of the annual statements to members, so that information would be provided to a spouse requesting information. But if a new valuation report is being prepared for filing, this would not be part of the annual statement to members (although it would be part of a termination statement given to the member under PBSA Reg., 33(4)). However, since this information is relevant to estimating the value of the spouse’s potential share, it should be part of the information provided to the spouse. | |
| 15.22 Information purely personal to the member | Does a plan administrator have to disclose purely personal information about the member such as, for example, whether additional pension entitlement has been purchased after the breakdown of a relationship, or whether the member has appointed a new beneficiary? Is an administrator even allowed to disclose this information? |
| There is a distinction between (a) information about the member’s benefits (which would have to be disclosed if relevant to determining or valuing the former spouse’s share) and (b) the member’s personal information. Information about purchased entitlement would likely be relevant for determining the former spouse’s proportionate share of the overall benefits. But when providing information, the administrator must not, unless the member consents in writing, disclose the member’s address, fax number, e-mail address, telephone number, spousal status or the identity of any beneficiary nominated by the member (other than the former spouse). [Reg., s 13(1)] For the beneficiary designation, the administrator would confirm whether or not the former spouse is the beneficiary. [Reg., ss10(1)(c), 13(1)(b)] If documents required to be disclosed contain any of the specified personal information, the administrator must edit the document to remove it. [Reg., s 13(2)] Information disclosed to a former spouse claiming an interest is subject to conditions of confidentiality in the hands of the spouse and can only be used or disclosed for the purpose of dividing the benefits. [Reg., s 13(4)] See para 15.51. |
| for the limited member, or (b) the limited member should become entitled to a share of the monthly income stream paid to the member (see paras 15.55 and 15.56). Having a signed Form P4 on hand, even one provided years before, would provide at least a partial solution to this dilemma and therefore a prudent course for the limited member to adopt. But not all plan administrators are prepared to accept a Form P4 submitted unless it can be implemented within a matter of months (relying on the requirements of Reg., s 16(d)) | ||
| 15.25 Obligation to inform about separate entitlement | Is it necessary for the information to show how the pension division affects the member’s benefits, and what portion of the benefits the spouse will eventually receive? | |
| No. Nothing in the FLA or the Division of Pensions Regulation requires the administrator to show the separate interests of the member and the spouse before the benefits are actually divided. An administrator that does not show the separate interests of the member and the spouse on the information sent out would be wise to add to the information statement a warning or caution that: the information provided relates to the benefits in their undivided form; andthe member and the spouse will each receive a part of the benefits, as set out in the agreement or court order they filed with the plan. A warning containing this information will make sure that the spouse and member are not misled concerning the dimensions of their pension entitlement. | ||
| 15.26 Obligation to notify: advance notice to limited member | The member has terminated employment and requested a transfer of the benefits to another plan. The member’s former spouse is registered as a limited member with our plan. What are our duties to the limited member in this case? | |
| The limited member must be given 30 days’ advance notice of the transfer. [Reg., s 9] If the member is eligible to have the pension commence, the limited member can choose between receiving the benefits by a lump sum transfer or a separate pension. [FLA, s 115] If the member is not eligible to have the pension | ||
| commence, the limited member is entitled to a proportionate share of the commuted value being transferred. [FLA, s 115(6)] See also paras 2.11 and 15.27. | ||
| 15.27 Obligation to notify: advanced notice to spouse | The spouse sent in a Form P1 but is not yet a limited member of the plan. The employee has now quit and directed that pension entitlement be transferred from the plan. What are the plan’s obligations? | |
| Basically the same as described in para 15.26. Notice must be sent to the spouse 30 days before the member’s direction can be acted upon. [Reg., s 9] | ||
| 15.28 Obligation to notify: Calculating 30 days advance notice | How is the 30-day advance notice calculated? | |
| Be careful about how you calculate the 30 days. Under s 25(4) of the B.C. Interpretation Act, the first and last days are excluded. Also, if the last day occurs on a non-business day, it is extended to the next business day. | ||
| 15.29 Obligation to notify: When is advance notice received? | When is advance notice deemed to be received? | |
| Reg., s 3 sets out when notice is deemed to be received. If sent by ordinary mail notice is deemed to be received 5 days after the date of mailing. If by e-mail or fax, notice is deemed to be received on the day it was sent. | ||
| 15.30 Obligation to notify: advance notice to member | The member and spouse have an agreement dividing the pension benefits that was made before July 1, 1995. It provides that the member must sever the spouse’s interest when that becomes possible. The spouse has exercised rights under FLA, s 112(5) to opt in to Part 6 by delivering a Form P2 to the plan, together with the agreement. Is the plan under an obligation to notify the member? | |
| Yes. The member should be sent a Form P6 advising that the plan has received a Form P2 from the spouse (although, if s 112(5) applies, the member has no right to prevent the severance). If there are special circumstances (although it’s difficult to imagine what they could be), the only way to prevent severance would be for the member to obtain a court order. | ||
In principle, the adjustment is neutral, but any approach to achieving neutrality depends upon the date as of which neutrality is assessed, and on what basis.
In some jurisdictions, the test for neutrality is that the cost to the plan must be the same, before or after division, and so the overall cost to the plan is determined by the choices made by the member. In these jurisdictions, frequently the result is to place a low value on the former spouse’s share and then, when determining the member’s share at pension commencement, allocating any increase that would otherwise have formed part of the former spouse’s share to the member.
Under B.C. legislation, neutrality is achieved by giving each party a share of service and ensuring that the total of service after division equals the service before division. But because the member and the former spouse are allowed to use that service as each considers best, the overall financial cost to the plan may differ depending on the choices made. However, this is consistent with how the plan is designed in the first place. Putting pension division issues aside, the member in question may decide to take early retirement, which, if subsidized, possibly increases the overall cost of the benefits to the plan. Or the member may postpone pension commencement long past the normal retirement age, which tends to decrease the overall costs to the plan. The plan is funded to permit a member to make these kinds of choices. B.C.’s pension division legislation is structured to allow a former spouse similar personal choice with respect to the benefits. This means that the overall costs of the divided benefits will be within the plan’s funding expectations with respect to the benefits, but it is not possible, and would be completely unfair, to cap the former spouse’s entitlement by reference to the member’s sole discretion about how the benefits are to be used.
A possible conflict arises if B.C. pension division legislation applies (which requires adjusting on service), but the plan is regulated under legislation outside B.C. that tests neutrality by the cost to the plan of the member’s benefits had they not been divided. But this conflict is typically resolved by determining which jurisdiction’s laws apply. For example, the federal PBSA sets out a financial test for neutrality, so there is, at a quick glance, an apparent conflict. But the federal PBSA, s 25(3) exempts a plan from the federal Act’s benefit requirements if provincial law applies, which means that B.C.’s approach would govern.
Financial differences may arise from the adjustments required to achieve gender neutrality for the plan as well. [See para 2.53]
| Adjusting based on value Member’s total annual accrued pension – value of LM’s share (2% x $60,000 x 20) – $2,500 = $24,000 – $2,500 = $21,500 Adjusting based on service Member’s total annual accrued pension – service allocated to LM of 2.5 years = 2% * $60,000 * (20 – 2.5) = $21,000 The Division of Pensions Regulation requires the adjustment to be made on service, which gives the member $500 per month less than if the adjustment were made based on the monthly value allocated to the limited member. This doesn’t strike us as being neutral to the plan. Should we be allocating the difference to the member’s share? |
| The question of financial neutrality to the plan depends on the date used for establishing neutrality. In the example you provide, there is an excess. It would be possible to come up with examples where the overall value may be more than had the benefits been divided (where the member postpones pension commencement for many years). Just as there should be no clawback where there is a shortfall to the plan, nor does the B.C. legislation require the plan to increase the member’s share to adjust for any supposed excess. Under the B.C. pension division legislation, neutrality is determined at the date of division by adjusting service. After that date, each party is entitled to use their share of service as they wish, and its value will be affected by the separate elections they make. See para 15.38. This does not mean that other legislation might not impose additional obligations on the plan if, for example, it is regulated by legislation outside B.C. or if, for example, federal legislation (such as the Income Tax Act) requires neutrality to the plan to be determined as of a different date (such legislation would not limit the application of B.C. pension division legislation, but may require different results which are not in conflict with B.C. pension division legislation: see para 1.12 discussing principles of paramountcy. |
| 15.40 Retroactive Arrangements | The member filed the Forms with our plan to have the pension commence next month. The member has now requested that the commencement date be put on hold to give the member and former spouse time to finalize pension division arrangements. Once finalized, they want the pension division arrangements completed as of the preserved pension commencement date. They have now provided us with an agreement spelling this out. What are our obligations? |
| The parties are permitted to preserve a pension commencement date so that the pension division arrangements can be carried out retroactively to that date. [FLA, s 132; see also BCLI Report, recommendation 12] This allows the parties to preserve pension division options (because the rules would change once a pension commences) and also protects the parties against the possibility that delay in finalizing pension division arrangements will result in the loss of any pension income. | |
| 15.41 Changing average age of retirement | We relied upon s 23(5) of the Division of Pensions Regulation to specify an average age of retirement. Our actuaries have reconsidered matters and suggest that it would make more sense for our plan to select a different age for this purpose. |
| The policy adopted under the FLA is to ensure that the average age of retirement is selected carefully and not changed without good reason. The concern is that if the issue is decided from file to file, an unconscious bias may creep in. An administrator may choose an average age of retirement that differs from the age required under the Reg. (or if the plan has no average age of retirement) but cannot change that election at a later date without the permission of the Superintendent. This applies equally to plans that are subject to B.C. law, but not registered in B.C. [Reg., s 23(5)] | |
| 15.42 Gender neutral | Can the plan take the spouse or the member’s sex into account when valuing and adjusting pension entitlement? |
| No. The PBSA requires that these calculations be carried out on a gender-neutral basis. [PBSA, s 10] See, however, para 2.53 with respect to how gender neutrality is achieved. |
| 15.51 Confidentiality of information provided by plan | We provided information about pension benefits to a former spouse who had filed a Form P1. We are concerned, however, that the information is being improperly used. The member says that it has been posted on the former spouse’s Facebook page. | |
| Anyone receiving information under the Division of Pensions Regulation is under an obligation to keep the information confidential. [Reg., s 13(4)] It may be used solely for the purpose of dividing the benefits (which means that it can be disclosed to professional advisors) or introduced in evidence in legal proceedings involving the benefits. The member would be entitled to various remedies against the former spouse and should seek legal advice. A plan administrator might consider adding a warning to information provided pursuant to a Form P1 that the information is confidential and there are legal consequences to a person who discloses the information other than for the purposes of dividing the benefits. | ||
| 15.52 Pension div. arrangements do not make sense | We have received an agreement dividing the benefits under our plan, but it is so garbled, we can’t figure out what the parties really intend for us to do. What are our obligations? | |
| Notify the parties, explain the problem and request directions. [Reg., s 7(2)] If they cannot agree, either party can apply to court for directions. [FLA, ss 130, 131] | ||
| 15.53 Form P1 and application for pension commencement | We have a Form P1 on file. The member has applied for pension commencement. The lawyer for the former spouse says we can’t do anything until they finalize the pension division arrangements. Is that correct? | |
| No. The P1 places a notice obligation on the administrator and entitles the former spouse to request information about the benefits. But once the administrator gives the former spouse 30 days’ advance notice about the member’s application for pension commencement, the administrator is required to start paying the pension. [FLA, s 142(1)] This rule applies even if the administrator has received a copy of an agreement or court order dividing the benefits, but the former spouse has not yet applied to become a limited member. [FLA, s 142(2)] If the former spouse needs more time to finalize the pension division arrangements, the parties can agree on preserving the pension | ||
| commencement date. See para 15.40. Otherwise, the former spouse will need to obtain a restraining order to preserve pension division options. See para 15.54. | ||
| 15.54 No Forms filed | We have received an agreement dividing the benefits under our plan, but no Forms have been filed. The member has applied for pension commencement. What are our obligations? | |
| In any situation where there has been an incomplete application by a former spouse with respect to perfecting a claim to pension benefits (including sending in a court order or agreement alone), the administrator is protected from any liability by giving the spouse the same notice that would have been given if the spouse had filed a Form P1, or become a limited member. [FLA, s 143] | ||
| 15.55 Can’t locate the limited member | We have a situation where the former spouse is a limited member who has not yet received a share of the benefits. The member has now decided to have the pension commence. We have given the limited member 30 days’ notice before implementing the member’s decision, but the limited member has not given us directions concerning the limited member’s share, even though we have made numerous follow ups. We have another file with similar facts, except the problem is that we cannot locate the limited member to give notice. What happens to the limited member’s pension entitlement? What are the plan’s obligations when the limited member cannot be located? | |
| The onus is on the limited member to keep contact information up to date and take reasonable steps to protect legal rights. By not providing accurate contact information, or not providing directions before pension commencement, it is the limited member who is responsible for the fact that the options available after pension commencement are no longer as secure, not the plan administrator. If the plan administrator gives notice to the limited member, there is no liability on the plan administrator for administering the pension benefits in accordance with the plan text: FLA, s 143; Reg., s 2. The Division of Pensions Regulation provides for mailing, faxing or e-mailing to the most recent address provided by the limited member and when the notice is deemed to have been received (see para 15.29). | ||
Part 6 is silent concerning how to handle benefits if Form P4 is not received from the limited member with directions for dividing them. If there were no pension division arrangements in place, the administrator would commence payment of all of the pension to the member. In the absence of directions for dividing the benefits, the administrator is still under an obligation to commence payment of the pension.
However, the Form P2 filed by the former spouse to become a limited member also functions as directions for pension division. It is the form used to request payment of the limited member’s share of the income stream once the pension has commenced. [FLA, s 117(2); Reg., s 4(1)(b)]. As explained on Form P2: “for a pension . . . that is being paid, this form will also act as a request for the administrator/annuity issuer to pay the limited member his or her proportionate share of those payments”.
In the case where the limited member cannot be located, the limited member’s share of the benefits would be retained by the plan until the limited member can be contacted. Otherwise, the administrator would direct the fund holder to mail the limited member’s proportionate share of the pension to the address provided.
To limit exposure to risk, some plan administrators take extra steps to try to find a missing limited member before the pension commences (even going so far as to involve a service to locate the limited member). Taking extra efforts to locate the limited member is a sensible precaution. The costs involved in making sure that the limited member knows what is going on are often significantly less than the value of the benefits involved (and the potential exposure to risk of the plan administrator).
The expectation is that this scenario will occur infrequently (most limited members, advised of the importance of making a decision before pension commencement, will act promptly in giving directions. Or, because the separate pension option is now available before pension commencement, there will be few circumstances where a former spouse decides to wait to receive the share).
For an alternative approach, see para 15.56.
For discussion concerning the plan administrator’s obligations in similar situations see paras 8.27, 13.19 and 15.57 (and FLA, s 143):
| (The plans administered by the Pension Corporation base pension benefits on highest average earnings, and the pension benefits are indexed. To adjust for any indexing that has occurred between the member’s pension commencement and the limited member receiving the share, the Pension Corporation applies indexing to the highest average earnings before calculating the limited member’s entitlement.) | |
| 15.57 No liability if there is no notice obligation under Part 6 of the FLA | The member has given directions to have the pension commence. We have a note on file that the member separated from his spouse. The note is from 3 years ago. No Form P1 has been filed with us. What are our obligations? |
| Under the PBSA, a member who has a spouse is required to choose a pension that pays a 60% survivor benefit. If the plan administrator is satisfied that the member is not in a relationship with someone who qualifies as a spouse under the PBSA, this scenario does not raise issues that place any obligations on the plan administrator under the FLA. There are notice obligations if: the former spouse has become a limited member; or filed a Form P1; or made an incomplete application to become a limited member. [FLA, s 143] If there is a notice obligation, then provided the administrator gives that notice, no legal proceeding for damages or other relief may be brought against the administrator for administering the benefits in good faith. [FLA, s 143(3) and (4)] If notice is not required under FLA, s 143, no legal proceeding for damages or other relief may be brought against the administrator for administering the benefits in good faith. [FLA, s 143(3) and (4)] |
[SN1]Oliver Cowern (UVic Pensions) – If the member pays the fee up front, it is essentially paid from net income. If the fee is deducted from the proportionate share where the benefit is not being paid as income (for example from the value of a LIRA transfer-out), then there are cases where it is being deducted from the gross benefit. Are there tax implications that the administrator needs to be aware of such as withholding tax on the fee deducted?
[GU2]Group to discuss
[SN3]Cynthia Callahan-Maureen (Min. of Finance) – Should this be updated, similar to the update in Q 15.10?
[GU4]Group to discuss
[SN5]Updated by Stephen Cheng (Westcoast Actuaries)