Interpretive Information on The Pension Benefits Act

This Information Bulletin has no legal authority. For specific legislative requirements, The Pension Benefits Act and Regulation there under should be used.

Published by the Pension Commission of Manitoba

Revised August, 2004

Solvency                                                        

Act 18(4), 26(1), 26.1, 26.3, 28(3), 28(6), 38

Two Year Vesting and Locking-in                      

Act 21(2), 

Vesting upon termination or winding up of         
a plan

Act 21(2.2), Regulation 13(6)

Commutation of Benefits                                 

Act 21(1) - (6), 21(2.3), 23(3)
Regulation 18, 18.1, 18.2, 18.4 & 19

Normal, Postponed, Early Retirement                 

Act 21(7) - (10), 

Life Income Fund                                            

21(13), 21(13.1), 23, 24, 31(2)-(8)
Regulation 18, 18.1, 18.2, 18.3.1, 24, 27

Locked-In Retirement Income Fund                   

21(13), 21(13.1), 23, 24, 31(2)-(8)
Regulation 18, 18.1, 18.2, 18.3.1, 24, 27

50% Maximum Employees Cost Rule                 

Act 21(11), Regulation 11

Portability                                                        

Act 21(13), Regulation 14(3); 18, 18.1

Locked-In Retirement Account                          

Act 21(13), 31(4), Regulation 18, 18.1

Eligibility and Membership                                 

Act 21(19), (20)

Death Benefit Before Retirement                       

Act 21(26), 21(27)

Termination of Employment                             

Act 22, Regulation 23(9)

Method of Determining Refunds                         

Act 22, Regulation 10(3), 10(3.1)- 10(3.3), 14

Survivor Benefits                                           

Act 23(1), Regulation 27

Rate of Interest applicable to employee             
contributions

Act 25(1) - (3), Regulation 10(4)

Annuities, Administrative Expenses                  

Act 25, 31(1),  Regulation 3(7), 5(2)

Unisex                                                       

Act 21(18)

Multi-Unit Pension Plans                                  

Act 26.1, Regulation 4(8) - 4(11), 23(6)

Surplus                                                          

Act 26(2), 26(2.1) - 26(2.3)
Regulation 7(1) - 7(2)

Investment Regulations (Prudent Person)          

Act 26(1)(b), Regulation 16(2) - 16(3)

Frequency of Pension Plan Remittance              

Act 28(6), Regulation 2.3(1)

Disclosure                                                      

Act 29, Regulation 23

Employee Annual Statement                             

Act 29, Regulation 23(6)

Garnishment of Pension Assets for                  
Maintenance Enforcement

Act 31(1), 31.1

Splitting of Pension Benefit Credits on
Breakdown of a Marriage or Common-Law
Relationship

Act 31(2) - 31(8), Regulation 24(1) - 24(6)
28, 29

Compliance with the Income Tax Act (Canada) 

Regulation 7(3) - 7(4)

Transfer Values                                               

Regulation 2.4(2) -2.4(3), 14(1.1) -14(1.2)

The references to the Regulations reflect the revised sections as per the most recent Regulation and may not correspond to the sections shown on the updates.

SOLVENCY REQUIREMENTS (See Update 24)

Act 18(4), 26(1), 26.1, 26.3, 28(3), 28(6), 38

TWO YEAR VESTING AND LOCKING-IN

Act 21(2)

For employees, who terminate plan membership while employed in Manitoba, all benefits in respect of service after January 1, 1985, or in respect of previous service under a plan amendment made after January 1, 1985, will be subject to vesting after two years of service. These vested benefits must also be "locked-in". The previously permitted commutation of up to 25% of the vested pension will apply in future only to benefits accrued before January 1, 1985.

The requirement for vesting and locking-in changed from 5 years to 2 years, effective January 1, 1990.

The requirement for full vesting after 10 years of service and locking-in after the completion of 10 years of service and attainment of age 45, is applicable to benefits accrued for service from July 1, 1976 to December 31, 1984.

Effective June 24, 1992, benefits are determined on a final location approach.

VESTING UPON TERMINATION OR WINDING UP OF A PLAN

Act 21(2.2), Regulation 13(6)

Upon termination or winding up of a pension plan in whole or in part, all affected members are fully vested in benefits accrued for service on and after July 1, 1976.

COMMUTATION OF BENEFITS

Benefits in Excess of Canada Revenue Agency Maximums

Act 21(2.3)

Where a pension plan provides benefits, surplus or a commuted value to an employee, which is in excess of the applicable maximum permitted under the Income Tax Act (Canada), the benefit, surplus, or commuted value, which is in excess of such maximum is exempt from the locking-in requirements under Sections 21(1)(b) and 21(2)(b), and is not to be treated as a deferred life annuity.

Commutation of small benefits in pension plans (See Update 20)

Act 21(4)

Commutation of small benefits in LIRAs, LIFs and LRIFs
(See Update 22)

Act 21(1) - (3), 23(3), Regulation 18, 18.1, 18.2, and 18.4

25% pre-1985 Benefits

Act 21(5)

A pension plan may provide for the commutation of benefits upon termination of plan membership of 25% of the commuted value of the vested pension accrued from July 1, 1976 to December 31, 1984.

Where a pension plan requires that the 50% maximum employee cost rule applies in respect of benefits accrued prior to January 1, 1985, as well as benefits accrued after this date, the 25% commutation provision is not applicable to benefits accrued prior to January 1, 1985.

Shortened Life Expectancy

Act 21(6), Regulation 19

A pension plan may provide for the commutation of benefits if the member’s life expectancy is shortened considerably due to a mental or physical disability, as evidenced by the written opinion of a qualified medical practitioner.

If the member has a spouse or common-law partner, the "Pension Waiver Form" (MG-1701) must be completed by both of them, prior to the member’s pension benefits being commuted.

NORMAL, POSTPONED AND EARLY RETIREMENT

Act 21(7)(8)(9)(10)

Effective January 1, 1984, every pension plan must define a retirement age at which unreduced benefits are payable, but no member will be required to retire at that age. Service requirements attached to a normal retirement age are not acceptable. Benefits must be fully vested at normal retirement age.

An employee has the right to retire after their normal retirement age or continue as a member of the pension plan and to earn additional benefits consistent with the plan provisions as they relate to service or membership up to normal retirement.

Early

A "reasonable" early retirement provision is considered to be 10 years preceding normal retirement age, i.e. age 55 in most instances. Any provision more restrictive than age 55 with 10 years of service would be unacceptable.

The formula for the pension benefit for each year of future service, i.e. service after the effective date of the plan, must be uniform except when approval from the Commission is obtained to do otherwise. The normal retirement age cannot be used to change the pension formula.

Life Income Fund
  (Update 15, 29)

21(13), 21(13.1), 23, 24, 31(2)-(8)
Regulation 18, 18.1, 18.2, 18.3.1, 24, 27

Locked-In Retirement Income Fund
  (See Updates 15, 30)

21(13), 21(13.1), 23, 24, 31(2)-(8)
Regulation 18, 18.1, 18.2, 18.3.1, 24, 27

50% MAXIMUM EMPLOYEE COST RULE

Act 21(11), Regulation 11

The employee’s contributions plus interest must provide no more than 50% of the commuted value of an employee’s pension benefit earned on and after January 1, 1985. The 50% cost rule applies in all calculations involving annuities (i.e. death, termination, retirement, disability, garnishment or the break-up of a marriage or common-law relationship).

Any excess employee contributions may be refunded in cash or may be used to increase the amount of the deferred annuity, in all cases, except in the instance of the break-up of a marriage or the common-law relationship. In the latter case, excess contributions are locked-in.

The 50% rule applies to defined benefit plans only. Combination plans, where the employee contributes on a money purchase basis and the employer contributes on a defined benefit basis, are exempt from the 50% rule.

It should be noted that termination of membership due to a transfer of the employee to ineligible employment under the plan, (e.g. an employee transferring from union to management) will necessitate the 50% calculation. The determined excess, if any, will remain in the plan and accrue interest until the employee is eligible to receive a benefit.

Upon the break-up of a marriage or common-law relationship, the 50% test must also be applied at the same time the pension credit split is being determined. The spouse or common-law partner is entitled to receive one-half of the excess contributions, which can be transferred to a Locked-In Retirement Account (LIRA) or registered pension plan (if that plan so allows).

Example

Employee terminates employment and at that date is entitled to a deferred annuity under Section 21(2) of the Act in respect of service on and after January 1, 1985. The value of the deferred annuity in respect of such service is $4,700.00. The value of employee contributions, with interest, for service on and after January 1, 1985 to the date of termination is $5,200.00. The employee may request a cash refund or the excess contribution can be used to increase retirement benefits, at the employee's option.

The portability provisions of The Pension Benefits Act of Manitoba are to be applied to members terminating on or after January 1, 1984, and will include all accrued benefits.

Transfer Vehicle

Any employee who terminates their plan membership or employment with entitlement to a deferred vested pension must be permitted to transfer the commuted value of their accrued benefits, as per the above, to a Locked-In Retirement Account (LIRA) or another registered pension plan, (provided that the new plan will accept the transfer, and administer the requirements of The Pension Benefits Act of Manitoba).

LOCKED-IN RETIREMENT ACCOUNT  
(See Updates 13, 15)

Act 21(13), 31(4), Regulation 18, 18.1

Locked-in pension benefits, arising from a termination, death, credit splitting application, or change of financial institution on or after June 12, 1993, must be transferred to a Locked-In Retirement Account (LIRA) issued by a financial institution on the Superintendent’s list of financial institutions in accordance with Section 18.1 of the Regulation.

Prior to the pension funds being transferred to a LIRA, the employer, Locked-In RRSP or Locked-In Retirement Account (LIRA) carrier must ensure the financial institution issuing the LIRA contract is on the Superintendent’s list of financial institutions. This list is available at http://www.gov.mb.ca/labour/pension/index.html or by contacting the Pension Commission of Manitoba.

The employer, Locked-In RRSP or Locked-In Retirement Account (LIRA) carrier must then advise the financial institution issuing the LIRA contract, in writing that the pension funds are locked-in and must be used to provide retirement income by purchasing a life annuity from an insurance company, or transferring the pension benefits to a Life Income Fund (LIF) or to a Locked-In Retirement Income Fund (LRIF).

ELIGIBILITY AND MEMBERSHIP

Act 21(19), (20)

Effective January 1, 1984, full-time employees hired by an employer who operates a pension plan will be required to join the pension plan after completing two years of service. A part-time, temporary, casual or seasonal employee will be required to join the pension plan after the completion of two years of service and after it has been determined that they have earned at least 25% of the Year’s Maximum Pensionable Earnings (YMPE), as specified by the Canada Pension Plan, in each of their two consecutive calendar years of service.

Students, part-time and full-time employees hired prior to January 1, 1984, members of certain religious groups, and plan members receiving a pension income who return to work for the same employer or another employer covered by the same pension plan, are not required to become members of the plan, they may do so at their discretion upon satisfying the eligibility requirement.

All employees, regardless of income levels and regardless of when they were hired, must have the option of joining the plan voluntarily, subject to a maximum eligibility requirement of two years of service after January 1, 1984.

 

1. A part-time employee hired January 1, 1998, who earns more than 25% of the YMPE for two consecutive calendar years, i.e. 1998 through 1999, will be required to join the plan on January 1, 2000.
   
2. A part-time employee hired January 1, 1998, who earns more than 25% of the YMPE for the calendar year of 1998, but not for the calendar year of 1999, must be allowed to join the plan on January 1, 2000, voluntarily. However, the employee need not be required to join the plan until such time as they earn 25% of the YMPE during two consecutive calendar years.
   
3. A pension plan was established and the employee was hired prior to the effective date. In this situation, a part-time employee hired prior to January 1, 1984, who was not eligible to join the plan previously must be allowed to join the plan at the employee’s choice any time after completing the same requirement as a full-time employee, i.e. two years of service.
   

DEATH BENEFIT BEFORE RETIREMENT

Act 1(3) and 21(26) - 21(27)

If the member was vested under Section 21(2), i.e. two year vesting, the value of the death benefit will be no less than the commuted value of the benefit accrued on and after January 1, 1985. In the event of the death of a member who has a spouse or common-law partner, the member’s spouse or partner must receive the death benefit in the form of a life annuity, either deferred or immediate, as chosen by the spouse or partner. The spouse or partner also has the right to transfer the benefit to a Locked-In Retirement Account (LIRA), to a Life Income Fund (LIF) or a Locked-In Retirement Income Fund (LRIF), or to another registered pension plan (if that plan agrees to accept such a transfer), but under no circumstances will a cash refund of any portion of this benefit to the spouse or partner be allowed.

A common-law partner is entitled to survivor benefits provided they satisfy the conditions specified in the definition of common-law partner in Section 1(1) of the Act and provide such evidence satisfactory to the plan administrator.  For the purpose of subsection 21(26), a common-law partner shall be considered to have survived a member or former member with whom he or she had a common-law relationship only if they were cohabiting with each other immediately before the death of the member or former member.

If the member did not have a spouse or common-law partner at the time of their death, the payment may be made to the designated beneficiary or estate.

If the member was not vested under Section 21(2), the death benefit will be as provided by the plan provisions, but not less than the employee’s own contributions with interest. This benefit can be payable to the beneficiary or estate.

With respect to service prior to January 1, 1985, the death benefit payable will be the benefit provided by the plan provisions for such service, if any. This benefit can be payable to the beneficiary or estate.

In the event that the spouse or common-law partner, as the case may be, is entitled to receive or has received a division of pension benefits according to Sections 31(2), they would not be entitled to the benefit under Section 21(26)(a). However, Section 21(27) states that this exception for separated spouses or partners is not intended to prevent surviving spouses or partners upon reconciliation and resumption of co-habitation, from receiving the death benefit under Section 21(26).

TERMINATION OF EMPLOYMENT

Act 22, Regulation 23(9)

Cash refunds will only be allowed on termination of employment, not termination of membership from the plan. A cash refund pertains to non-locked-in contributions only.

The plan must provide that the benefits to which a terminating employee is entitled must not be less in value than their own contributions made to the plan. Payments to terminating members who are eligible for cash refunds must be made within 90 days of the later of:

1. the date of termination of employment; and
2. the completion and filing of all documents required to authorize the refund.

The 25% commutation provision will not be allowed for benefits earned after January 1, 1985.

Example

An employee notifies their employer that they are terminating employment as of August 1, 2000.

The employee is entitled to a cash refund of their own non-vested, non-locked-in contributions with interest.

Within 60 days from August 1, 2000, the employer must automatically provide this employee with a statement containing the following information (where applicable):

1. the amount of deferred pension, if any, to which the member is entitled, the date on which this deferred pension would normally commence and the provisions, if any, for early commencement of this deferred pension;
   
2. the commuted value of such deferred pension;
   
3. the amount of cash lump sum settlement to which the member is entitled and the deferred pension, if any, which will remain if a cash refund is elected and the commuted value of such remaining deferred pension;
   
4. if a full or partial deferred pension is elected, the benefit if death occurs prior to the commencement of the deferred pension;
   
5. the options under the plan for the disposition of the cash refund and the commuted value of the deferred pension; and
   
6. the name and address of the party responsible for payment of the deferred pension.

Once the employee has received this statement they have 90 days in which to advise the employer of their elected option. Should the employee fail to make an election within 90 days, the member may be deemed to have elected a deferred pension.

Assuming the employer and employee both use the maximum amount of time permitted, the date is now December 28.

A refund must be made to the employee by March 28, 2001 (90 days from December 28) and is to include interest as prescribed under Section 10(3) of the Regulation, compounded monthly.

Act 22, Regulation 10(3), 10(3.1) – 10(3.3), 14

SURVIVOR BENEFITS

Act 23(1), Regulation 27

Every pension plan must state that the pension payable to a member who has a spouse or common-law partner, will be in the form of a joint pension reducing to not less than 2/3rds on the death of either the member and spouse or partner. If the member and spouse or partner both agree, a form entitled "Pension Waiver Form" (MG 1701) may be completed by both of them, allowing the member to choose an alternate form of pension payment.

A common-law partner is entitled to survivor benefits provided they satisfy the conditions specified in the definition of common-law partner in Section 1(1) of the Act and provide such evidence satisfactory to the plan administrator.

The joint and survivor pension does apply to bridging benefits. However, this requirement need not be applied to post retirement supplements.

Example

Employee elects to retire under the provisions of the company’s pension plan. The plan provides a bridging benefit upon early retirement from date of retirement to the date CPP/QPP and OAS commence. The employee is married or in a common-law relationship as of his date of retirement and is receiving a joint and 2/3rds survivor benefit.

Basic Monthly Pension: $600.00

Monthly Bridging Benefit: $300.00

Total Monthly Benefit: $900.00

If the employee dies before the normal retirement date, the spouse or common-law partner will receive a monthly annuity of $600.00 (i.e. 2/3rds of $900.00) payable until the date the employee would have started to receive CPP/QPP and OAS benefits. The spouse or partner will then receive a monthly annuity of $400.00 (i.e. 2/3rds of $600.00).

RATE OF INTEREST APPLICABLE TO EMPLOYEE CONTRIBUTIONS
(See Update 9)

Act 25(1), 25(2) and 25(3), Regulation 10(4)

In a defined benefit plan, the rate of interest credited to employee contributions made after 1983 must be within 1% of the gross return earned by the fund each year, based on either book or market value. Alternatively, effective December 11, 1992, the rate of interest credited to these contributions may be equal to the average yields on 5-year personal fixed term deposits as published in the Bank of Canada Review as CANSIM Series V122515 rounded down to the nearest 1/10 of 1%.

The plan sponsor will be able to select the basis for calculating the refund rate of interest, subject to the above limitations, and provided that the basis is consistently applied from year to year. The rate basis selected must be documented in the plan.

In a money purchase plan, the rate of interest credited to employee and employer contributions must be the gross return of the fund less expenses.

ANNUITIES, ADMINISTRATIVE EXPENSES (See Update 19)

Act 25, 31(1), Regulation 3(7), 5(2)

UNI-SEX

Act 21(18)

No pension plan shall provide for or permit:

1. different rates or amounts of contributions by the members based on differences in sex, or;
   
2. different pensions, annuities or benefits based on differences in sex, or;
   
3. different options as to pensions, annuities or benefits based on differences in sex, or
   
4. the inclusion in or exclusion from membership in the pension plan or employees on the basis of the sex of the employee.

This provision is applicable to all benefits accrued to date and also will apply to all transfers to Locked-In Retirement Accounts (LIRAs), Life Income Funds (LIFs), Locked-In Retirement Income Funds (LRIFs) or registered pension plans, as allowed in Sections 18.1 and 18.2 of the Regulation. Further, the financial institution must, in all cases, provide benefits in respect of the funds held in a LIRA, LIF or LRIF on a non-sex distinct basis.

MULTI-UNIT PENSION PLANS

Act 26.1, Regulation 4(8) – 4(11), 23(6)

Definition

A multi-unit pension plan (MUPP) is a pension plan which is administered by a board of trustees with representation from plan members and participating employers, to which typically one or more participating employers contribute in respect of one or more unions or employee organizations. Members’ representation on the board of trustees must at least be equal to that of the participating employers, but may be greater. Special provisions and definitions have been included in this section of the Act, so as to distinguish them from the general provisions.

Designation under Section 26.1 as a multi-unit pension plan may be made by the Superintendent following the trustees advising the Superintendent in writing of their intent that the pension plan in question be considered a multi-unit pension plan under the Act, provided that in the Superintendent’s opinion the pension plan is organized and administered in accordance with the Act and Regulation. However, prior to the Superintendent making such designation, any class of employees who would otherwise be required to join the pension plan, may, by a majority vote, exclude themselves from the pension plan.

Provisions regarding members’ benefits include:

1. where a member of a MUPP is transferred to eligible employment under another pension plan with a participating employer, the employee is eligible to join the other plan immediately;
   
2. service with all participating employers must be taken into account when determining eligibility for benefits, i.e. vesting, locking-in, early retirement, etc.;
   
3. a member is vested and locked-in after the completion of at least 350 hours of employment in each of two consecutive pension plan years, or a reasonable equivalent approved by the Superintendent;
   
4. members who are not locked-in as set out above are entitled to a refund of their contributions, if any, in the manner set out in the Termination of Employment section of this Bulletin; and
   
5. where the commuted value of the pension benefit is less than 4% of the member’s YMPE in the year in which the termination, death or retirement occurred, and the member cannot be located following a period of two years during which no contributions have been made to the plan by or on behalf of the member, the pension plan may require that the pension benefit may be forfeited by the member, and therefore become funds of the plan.
   

A participating employer’s liability for the funding of benefits under a MUPP is limited to the amount the participating employer is contractually required to contribute to the plan.

The plan’s actuary must demonstrate that the amount of contributions is sufficient to meet the tests for solvency set out in the Regulation. If sufficiency cannot be demonstrated, the actuary shall propose remedial action and the trustees should file with the Commission, the proposed remedial action. If none of the options can be implemented, the trustees shall immediately notify the Superintendent, members and former members in writing of the options and reasons. The Superintendent may direct the trustees to take such steps as the Superintendent considers appropriate to ensure contributions are sufficient to provide benefits. The trustees shall immediately comply.

The documents governing a MUPP must contain the following special contractual provisions:

 

1. the method of allocating and distributing assets and the priority for determining benefits where assets are insufficient to pay all benefits in the event of plan wind up in accordance with Section 13(5) of the Regulation;
   
2. the method of allocating surplus on plan wind up;
   
3. outlining the consequences of a participating employer’s withdrawal from the MUPP with respect to funding and vesting of benefits of affected members;
   
4. the circumstances when termination of membership in the plan by an employee occurs;
   
5. how the plan will meet the tests for solvency contained in the Regulation;
   
6. outlining the consequences of a participating union’s withdrawal from the MUPP with respect to funding and vesting of benefits of affected members; and
   
7. outlining in either the trust agreement or the plan text, the process for selecting the trustees representing the members and participating employers.
   

SURPLUS (See Update 12,  Update 19)

Act 26(2), 26(2.1) - 26(2.3), Regulation 7(1) - 7(2)

INVESTMENT REGULATIONS – ADOPTION OF "PRUDENT PERSON"  (See Update 14)

Act 26(1)(b), Regulation 16(2) - 16(3)

FREQUENCY OF PENSION PLAN REMITTANCE
  (See Update 2, Update 24, Update 25)

Act 28(6), Regulation 2.3(1)

DISCLOSURE

Act 29, Regulation 23

Every pension plan sponsor must provide the participants, those eligible to participate and upon written request by the member, the spouse or common-law partner of a member, or authorized agent of either, with a written explanation of the terms and conditions of the pension plan, i.e. an employee booklet.

The booklet should be as clear as possible in regard to explanations to the employee and contain examples where applicable.

Legislative provisions contained within the booklet in addition to the actual plan provisions, should include, but need not be limited to:

1. the joint and survivor pension requirement for members with a spouse or common-law partner, and mention of the "Pension Waiver" option;
   
2. reference to the equal splitting of pension credits on the dissolution of a marriage or common-law relationship;
   
3. the 50% rule for defined benefit plans;
   
4. pre-retirement death benefits for surviving spouse or common-law partner;
   
5. a reference to individual employee statements that must be provided to employees, i.e. termination of employment statement, statement on death of a member, statement on retirement;
   
6. vesting and locking-in provisions for the pre-1985 and post 1985 service; and
   
7. the definition of common-law partner.

EMPLOYEE ANNUAL STATEMENT

Act 29, Regulation 23(6)

Within six months after the pension plan year-end, the employee must be provided with a statement indicating their entitlements under the pension plan. The member’s spouse or common-law partner may, at their option, request an individual copy of this statement as well.

All statements must contain the following basic information:

1. the member’s name;
   
2. the period of time to which the statement applies;
   
3. the member’s date of birth;
   
4. the degree to which the pension benefits of the member are vested and the date when the member’s pension benefits will be fully vested;
   
5. the date of joining the plan;
   
6. the normal retirement date;
   
7. the first date on which an early retirement pension is available and information concerning reduction of pension benefits on early retirement;
   
8. the balance of the member’s account at the commencement of the year;
   
9. the employee (if any) and employer contributions (if a Money Purchase Plan) to the account in the year, shown as separate amounts;
   
10. the employee voluntary contributions (if any);
    
11. the interest or the net investment gain or loss credited to the employee’s contributions;
    
12. the balance at the end of the year.

In respect of defined benefit plans, the statement must also include the formula for calculating the benefit, the credited years of service, where applicable, and any other such information required to enable the employee to calculate the benefit in accordance with the specific requirements of Section 23(6) of the Regulation.

Where a plan has a solvency ratio of less than 1, the annual statement must include a statement that:

1. as of the last review date, the plan’s assets are not sufficient to cover the liabilities;
   
2. special payments are being made to the plan to make the plan solvent.

For a multi-unit pension plan, the statement must include a statement that the plan’s assets are not sufficient to cover the liabilities and the pension benefits could be reduced.

GARNISHMENT OF PENSION ASSETS FOR MAINTENANCE ENFORCEMENT
(See Update 16, Update 16.1)

Act 31(1), 31.1

SPLITTING OF PENSION CREDITS ON THE BREAK-UP OF A MARRIAGE OR COMMON-LAW RELATIONSHIP

(See Update 0 – Sader vs. Sader
Update 5, Update 17, Update 19, Update 31)

Act 31(2) – 31(4), 31(6), 31(8) Regulation 24(1) – 24(6)

The following information relating to the break-up of a marriage or common-law relationship is general information only. For more detailed or specific information, contact the Pension Commission for assistance.

An equal division of pension credits will occur in the event of the break-up of a marriage or common-law relationship on or after January 1, 1984. Parties who separated before this date are not subject to the requirements of these sections.

As per section 31(2) of the Act, Pension benefit credits or payments due, are subject to an equal division where either:

1. an order of the Court of Queen's Bench made under The Family Property Act (formerly The Marital Property Act) exists requiring that family assets of the spouses or common-law partners are to be divided; or
2. a written agreement between spouses or partners exists dividing family assets of the spouses or common-law partners between them.

For purposes of clause (a) it should be noted that only:

•  married spouses;
•  parties to a registered common-law relationship; or
•  parties to non registered common-law relationship who have cohabited in a conjugal relationship for a period of at least three years

can obtain an order to divide family property under The Family Property Act. Otherwise, benefits and payments are divisible on the existence of a written agreement dividing family property.

Common-law partners are no longer required to file written declarations regarding the existence and termination of a common-law relationship in order that pension benefits be subjected to an equal division under the Act, as subsections 31(5) and 31(7) of the Act have been repealed.

The pension benefit credits or payments due that are subject to an equal division are those that accrued

•  in the case of a common-law relationship, from the first day of the period in which the parties cohabited with each other in a conjugal relationship and which continued until they became common-law partners, or
•  in the case of marriage, from the date of marriage or, if there was a period in which the parties cohabited with each other in a conjugal relationship and which continued until they were married, from the first day of that period,

until the date that the parties began living separate and apart.

For spouses who began living separate and apart before June 30, 2004, the pension benefit credit or payments due subject to division are those from the date of marriage.

Married and Common-Law Opting-Out (See Update 7)

A mandatory splitting of pension credits on the break-up of a marriage or the termination of a common-law relationship need not occur where the parties have:

 

1. received independent legal advice;
   
2. received a statement from the pension plan administrator indicating the pension benefit credit or payments due, as the case may be, to which each spouse or common-law partner would be entitled if the division was to take place; and
   
3. entered into a written agreement to the effect that the pension credits would not be divided between them, and the agreement must be in the form prescribed by Regulation 205/92.

The plan administrator must provide a statement as of the date of separation indicating the value of the pension benefit, or the amount of the payments due, to which each spouse or common-law partner would be entitled if the division were to proceed. The member’s annual pension benefit statement is not acceptable for this purpose. Further, in the event that the parties intend on waiving the division, this statement must be received by the parties prior to the execution of the "Pension Benefits Spousal/Common-Law Partner Agreement".

The Regulation also provides spouses or common-law partners, where both have pension benefits, with additional flexibility, whereby they can agree, in writing, to divide equally the difference in value of the two pensions, rather than dividing both pensions on a 50/50 basis.

At the point of the break-up of a marriage or common-law relationship, Mrs. X has earned, during the period of the marriage and or common-law relationship (as applicable), a pension benefit credit of $70,000.00, while her spouse or common-law partner has earned, during the same period, a benefit worth $40,000.00. Rather than divide each pension benefit on a 50/50 basis and execute two divisions and transfers, only a single division and transfer of the difference between the values need be executed, leaving both parties with pension benefit credits of $55,000.00.

i.e. transfer ½ of the net difference in the two benefits, or in this case:

Division of Net Difference

($70,000.00 - $40,000.00) = $15,000.00
                     2

Mrs. X = $70,000.00 - $15,000.00 = $55,000.00

Mr. X = $40,000.00 + $15,000.00 = $55,000.00

$15,000.00 is transferred to Mr. X’s plan, leaving Mrs. X with a pension benefit credit of $55,000.00 and, as Mr. X’s plan permits, $15,000.00 is transferred to his plan and administered as a locked-in additional voluntary contribution. If Mr. X’s plan had not permitted the transfer, the $15,000.00 could have been transferred to a LIRA, LIF or LRIF in Mr. X’s name.

Preamble

In order for the division of assets to be triggered, the requirements in Section 31(2) of the Act must be met. Where there is a division of assets, benefits are calculated on the basis that the member is deemed to have terminated employment on the date of the separation or the date the relationship terminated, as the case may be.

Only equal sharing of the pension benefit credit or payments due is permitted under the Act. The benefit cannot be apportioned between the parties in any other way, such as 60/40 or 75/25.

Pre-Retirement

The pension benefit credit represents the commuted or present value of a future stream of pension payments. The non-member spouse’s or common-law partner’s interest in this future stream of pension payments is calculated in the manner prescribed in the Regulation, and this lump sum is transferable as described below. The pension benefit credit is calculated in respect of a member who is either actively accruing pension benefits under the plan (active member) or is no longer accruing benefits, but has not commenced receiving pension payments (deferred member).

The benefit payable to the spouse or common-law partner must be adjusted for interest at the rate and in the manner prescribed in the Regulation. Again, the spouse’s or partner’s interest is adjusted in the same manner as that of a terminating plan member.

The non-member spouse or common-law partner will have the option of transferring their share of the pension credit to a registered pension plan of which the spouse or partner is a member, provided that the plan will accept the transfer, or to a retirement benefit plan of a type prescribed by the Regulation. Should the spouse or partner wish to defer payment of a pension income to a later date, a transfer of their share of the pension benefit can be made to a Locked-In Retirement Account (LIRA), a Life Income Fund (LIF), or Locked-In Retirement Income Fund (LRIF), which are a type of restricted registered retirement income fund (RRIF), or a life annuity contract, which is purchased through a life insurance company.

A transfer may be made to a LIRA, LIF, or LRIF provided the financial institution issuing the contract appears on the Superintendent’s list of financial institutions for the purpose of the product.

Post Retirement

In the event separation occurs after the plan member has retired and is in receipt of pension payments, the former spouse or common-law partner becomes entitled to receive a portion of these monthly pension payments, calculated in the manner prescribed in the Regulation. The benefits subject to a division in respect of a legal marriage are determined from the date of marriage or if there was a period in which the parties cohabited with each other in a conjugal relationship and which continued until they were married, from the first day of that period until the date the parties began living separate and apart (for spouses who began living separate and apart before June 30, 2004, are those from the date of marriage).  In a common-law relationship, the benefits are determined from the first day of the period in which the parties cohabited with each other in a conjugal relationship and which continued until they became common-law partners until the date the parties began living separate and apart. Essentially, the spouse or partner becomes entitled to a division of the income stream. The form of pension that was elected by the member upon retirement remains unchanged by the division of the pension. The administrator pays the member, former spouse or partner, the portion of the monthly pension payment to which each is entitled as a result of the division.

Timely advice to the pension plan administrator is important particularly when parties separate after the member retires. If the plan administrator is not aware that the parties have separated and the documentation required under Section 31(2) is not obtained for some time, full payments will continue to be made to the member after the separation date. According to Section 24(1) of the Regulation, the spouse or common-law partner has an interest in the payments due as of the date of separation. Therefore, if the parties do not sign the "Pension Benefits Spousal/Common-law Partners Agreement", once the member’s payments have been divided according to the PBA, the administrator must then address the matter of the spouse’s or partner’s interest in the full payments which were made to the member since the date of separation.

 Calculating splitting of pension after retirement

COMPLIANCE WITH THE INCOME TAX ACT (CANADA)

Regulation 7(3) - 7(4)

The Regulation under the Income Tax Act (Canada) requires all plans to include a provision allowing the return of employer and employee contributions to the contributor where those contributions are determined to be "ineligible contributions", and reduction of accrued pension benefits, where necessary to avoid revocation of the registration of the pension plan.

The pension plan document must state that the return of any such contribution to the contributor or such reduction of accrued benefits requires the Superintendent’s prior written consent.

A written request must be submitted to the Commission accompanied by:

 

1. a detailed description of the situation which has necessitated the return or reduction, as applicable;
   
2. a copy of the letter from Canada Revenue Agency requesting the return or reduction, as applicable; and
   
3. a copy of the advice to be provided to the affected employee.

TRANSFER VALUES (See Update 25)

Regulation 2.4(2) - 2.4(3), 14(1.1) – 14(1.2)