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DEPARTMENT OF LABOUR AND IMMIGRATION
PENSION COMMISSION UPDATE NO. 19
This update has no legal authority. The Pension
Benefits Act of Manitoba and The Pension Benefits Regulation, 188/87 R
amended should be used to determine specific requirements.
Revised March 2005
Annuities from Defined
Contribution Pension Plans
Administrative Expenses
Commuted Values
Splitting of Pension
Credits on the Breakup of the Marriage or Common-law Relationship after
Retirement
Allocation of Surplus to Plan Members
Reference: Regulation Sections 3(7), 5(2), 10(4),
Pension Benefits Act Sections 25, 31(1)
The purpose of this Update is to address a number of
administrative issues which have arisen in relation to The Pension
Benefits Act and Regulation, and require clarification.
In the event members, retiring from a defined
contribution or money purchase pension plan, receive retirement payments
from the pension plan, such plan is considered to be subject to the
requirements of Section 3(7) of the Regulation. A full actuarial
valuation report must be prepared in a manner consistent with the
Standards of Practice for the preparation of such reports issued by the
Canadian Institute of Actuaries, and filed with the Pension Commission
as per the sections of the Regulation.
Administrative expenses should be addressed in the
plan text. Generally, administrative expenses are either paid from the
pension fund, or paid outside the pension fund by the plan sponsor.
Upon settlement of a member's benefit, administrative
expenses in respect of the member's benefit calculations must be treated
in the same manner as any other administrative expense. Expenses in
respect of these benefit calculations cannot be charged against the
member's benefit as that is considered to be an attachment under Section
31(1) of the Act. Any plan which is offsetting benefits in this manner
must cease immediately, and amend any plan provision which provides for
this deduction. Members are entitled to the full value of their
benefits. Members are entitled to an increase in their benefit in the
amount of the deduction, plus interest at the credited rate.
When pension benefits are commuted for benefit
purposes, and a commuted value (pension benefit credit) determined,
Section 14(1) states that the commuted value of a deferred life annuity
shall be calculated in a manner acceptable to the Commission.
The commuted value of the pension benefit must be
determined in accordance with the Canadian Institute of
Actuaries, "Standard of Practice for Determining Pension Commuted Values".
Further, the Commission's position regarding the pension benefit upon
which the commuted value is based, must include pension benefits and any
other benefits provided under the plan to which the employee has become
entitled as of that time.
Therefore, should the member, as of the date the
benefit becomes payable, be entitled to one or more ancillary benefits,
the commuted value must reflect the value of these ancillary benefits.
(Also see Update No. 25 - "Interest
Payable on Commuted Values to date of transfer" and
"Recalculations of Commuted Values")
Pension Benefits Act Sections 31(2) - 31(4), (6), (8), Regulation
Section 24
Plan sponsors/administrators are faced from time to
time with the breakup of a marriage or common-law relationship which
occur after retirement. In some instances, the plan administrator is not
aware that the parties have separated, and the documentation required
under Section 31(2) may not be obtained for some time. As a result, full
pension payments 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 pension payments or 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
members pension payments have been divided according to the Act and
Regulation, the administrator must then address the matter of the
spouse's or common-law partner's interest in the full pension payments
which were made to the member from the date of separation until the
pension payments were divided. The spouse's or partner's interest is
referred to as the arrears. The following methods for addressing the
arrears can be employed.
One method of dealing with the arrears is for the
member to make a lump sum payment to the spouse or common-law partner,
outside the pension plan, which must be equal to the present value of
the arrears. The amount paid to the spouse or partner may take into
consideration the tax implications for each of the parties. The
administrator must take whatever steps are required to satisfy itself
that the spouse or partner received the payment in satisfaction of their
full interest in these arrears.
A second method involves the plan making a lump sum
payment to the spouse or partner in an amount equal to the present value
of the arrears. The members post-division pension payments must then be
further adjusted to reflect the lump sum payment made to the spouse or
common-law partner.
A third method requires a temporary reduction of the
member's post-division pension payments. The amount by which the
member's pension payments are further reduced, would be used to provide
a corresponding increase to the spouse's or common-law partner's monthly
pension payments in order to liquidate the arrears. Once the arrears to
the spouse or partner are fully liquidated, the member's pension
payments would then return to the post-division level. The repayment
period should take into account the life expectancy of the plan member.
However, there is still a risk to the spouse or partner that the plan
member may die during the repayment period, and that pension payments
will cease. The spouse or partner would then have to seek whatever
remedies are available to them, outside of the pension plan.
Of the latter two methods, the lump sum payment from
the plan may be preferable, as the arrears represent monies which are
due and payable to the spouse or common-law partner. Further, the impact
of the arrears on the member's post-division pension payments is
lessened, as this value is spread over the member's remaining lifetime,
rather than a specified period of time. The former spouse or partner is
also not exposed to the risk of the member dying during the repayment
period.
It should be noted that, in no event would the plan
be expected to pay an amount to the spouse or common-law partner which
exceeds the present actuarial value of the member's remaining
post-division pension benefit. The balance, if any, due and payable to
the spouse or partner would be a matter for the parties to resolve.
Further, it is possible that the effect of either of the latter two
methods, may be the temporary or permanent reduction of the member's
post-division pension payments to zero.
Depending on the options put forward to the member
and former spouse or common-law partner there should be written
disclosure provided, including the amount of arrears, and as applicable,
the amount of post-division pension payments and the effects to that
amount of the options being put forward, and the repayment period, as
well as any risks to the parties as outlined above. It is further
recommended that the administrator obtain a written agreement between
the parties regarding the method that will be employed to address the
arrears
Pension
Benefits Act Sections 21(1) - (2), 21 (2.3)
In the event of a plan termination or windup and
conversion of defined benefits to money purchase, a pension plan may now
provide for surplus funds to be either paid in cash to the member, or
used to increase the members pension benefit under the plan, subject to
the Canada Revenue Agency maximums.
Previously, if surplus funds were allocated to
members on plan windup or conversion, the amount of surplus allocated
had to be used to provide pension benefits for the member, with only
that amount which was in excess of Canada Revenue Agency
maximums being paid to the member in cash.
It should be noted that, other than upon plan
termination or conversion, surplus funds allocated to plan members must
be used to provide pension benefits.
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