|
PRIVATE PENSION PLANS IN MANITOBA
Revised May 2005
Pension Plans are created in order to give employees the security and stability of a guaranteed income stream during retirement. Funds which are accumulated through pension plans should not be associated or accessed as personal savings. In fact, a pension benefit which results from any given plan is composed of both employer and employee contributions. Furthermore, the fund's growth is partially attributed to the special status it receives from the Canada Revenue Agency.
In order to safeguard employees' rights to benefits, registered pension plans must abide, and be administered, according to the appropriate pension legislation. A Plan must be registered if it wishes to enjoy the tax advantages provided by the Canada Revenue Agency.
The jurisdiction in which a plan is registered depends upon the location of its members. The province in which the majority of members are employed, is responsible for maintaining the plan's registration. Certain industries, such as banks, transportation, tele-communication, etc., are considered of national interest, and fall under federal jurisdiction (Office of the Superintendent of Financial Institutions).
Any member working outside the province of registration must have their benefits administered according to the laws of the province in which they worked. Hence, members must follow the legislation of the province where they were employed, and earned their benefit.
- To ensure the resulting pension benefit is used for retirement, and not drained during an individual's "working years".
- To safeguard employees' rights to benefits promised under private pension plans.
- To provide protection for the spouse or common-law partner of a member.
The Manitoba Pension Commission is a branch of the Manitoba Government, and is responsible for ensuring that pension plans, and funds originating from pension plans, are administered according to
The Pension Benefits Act of Manitoba (PBA). The Commission registers new plans, and monitors existing plans to ensure:
- plan provisions comply with legislation;
- plans are administered according to legislation (PBA); and
- sufficient contributions are made per year.
In addition, the Commission's staff assist the public by;
- investigating complaints to assist in settling disputes,
- explaining various provisions of pension plans and the options available,
- explaining employees' responsibilities as plan members,
- investigating cases of overdue refunds, and
- responding to requests for speaking engagements.
LIRAs, LIFs and LRIFs are governed by the regulations under The Pension Benefit Act of Manitoba.
If an individual earned his/her pension while employed outside of Manitoba, then the legislation of the province in which the benefit was earned would apply. Alternatively, if the benefit was earned while employed in Manitoba, the PBA would apply.
The PBA not only regulates the allowable provisions of a pension plan, but also regulates how and when pension benefits may be transferred out of a plan. Therefore, the destination, and type of financial instrument that pension funds may go to will be limited by the PBA and its regulations. Furthermore, the contract provisions of the latter financial instruments will also be dictated by the PBA.
Legislation requires that pension administrators provide a member, and the spouse or common-law partner of a member, with certain transfer options upon termination, death, or retirement. The latter options are often referred to as either portability (for termination or death) or retirement options. The minimum portability options that a plan must provide depends on the type of plan, and the event that is initiating the transfer.
Once the pension benefit has been transferred from a plan to an outside financial institution, the plan provisions no longer apply. Now, it is up to the receiving institution to administer the pension funds according to the contract of the financial instrument and the governing legislation.
- A Locked-In Retirement Account (LIRA)
- A Life Income Fund (LIF)
- A Locked-In Retirement Income Fund (LRIF)
- An Immediate or Deferred Annuity
- A Registered Pension Plan (RPP)
Each of the above vehicles have different provisions, and facilitate different goals.
- The LIRA is a special modified RRSP contract designed specifically to hold locked-in pension funds (meaning funds not available as a cash refund) for a former plan member, former spouse or common-law partner, or surviving spouse or partner. Such a vehicle provides an alternative to leaving the funds in the pension plan.
- The LIF is an investment vehicle used to hold and pay out pension funds upon retirement. The LIF provides an alternative to a life annuity, and the opportunity to maintain control over pension capital, its investment, and the flow of income.
- The LRIF is an investment vehicle used to hold and pay out pension funds upon retirement. The LRIF provides an alternative to a life annuity, and the opportunity to maintain control over pension capital, its investment, and the flow of income.
- An annuity is a retirement benefit which, once purchased, will provide a pre-determined income for life, or a fixed interval of time.
The Pension Commission maintains a list of Financial Institutions for the purpose of the LIRA, LIF and LRIF.
The list identifies contracts that have been reviewed by the Commission, and were found to be consistent with the provisions of
the PBA. An institution must be approved, and listed with the Commission before accepting and holding pension funds. Hence, all LIRAs, LIFs and LRIFs in Manitoba must be approved by the Commission prior to being offered to the public.
Note: Approval by the Commission is strictly based on a contract's provisions meeting the requirements of
the PBA. Being placed on the Superintendent's List is in no way an endorsement of the institution or its contracts.
LIRA/LIF/LRIF - Provisions and Regulations
Portability/Transfers
Members presently holding pension funds in a LIRA/LIF/LRIF have the option of transferring to an alternative institution, into the following vehicles:
- an approved LIRA
- an approved LIF
- an approved LRIF
- a Registered Pension Plan of which the person is a member, depending on the plan text (LIRA only), or
- an immediate or deferred annuity.
** Prior to releasing funds, the transferring institution must insure that;
- The transferee institution and destination vehicle is on the Superintendent's List of Financial Institutions for the purpose of the LIRA/LIF/LRIF.
- The transferee institution was alerted in writing that the funds are locked-in pension monies, and must be administered as a deferred life annuity in accordance with the PBA and Regulation.
- If the funds are going to a LIF, LRIF or annuity, other than a joint and 2/3rds, then both the member and the spouse or common-law partner must complete a
Pension Waiver Form prior to releasing the funds.
If the above conditions are not met, and the receiving institution administers the funds incorrectly, the transferring institution can be held responsible, and be required to provide the pension that would otherwise have been accumulated.
In the event of the breakup of the marriage or common-law relationship, the institution holding the
LIRA/LIF/LRIF must contact the original plan issuer to determine the spouse's or common-law partner’s entitlement.
The spouse or common-law partner is entitled to 50% of the portion of the benefit
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.
Note:
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.
Once entitlement has been determined, the spouse or partner must transfer his/her portion of the LIRA to:
- another approved LIRA
- an approved LIF
- an approved LRIF
- an immediate or deferred annuity
- a registered pension plan, if the spouse or common-law partner is a member, provided that the plan will accept the transfer and administer the provisions of
the PBA.
If both parties agree, mandatory splitting of the LIRA need not occur, provided each person carries out the following.
- Receives independent legal advice.
- Receives a statement from the administrator indicating the benefit to which each spouse or common-law partner would be entitled if the division were to take place.
- Both the member and the spouse or partner complete and sign the Pension Benefits Spousal/Common-Law Partners Agreement (sample provided by the Manitoba Pension Commission).
If the parties do not wish to "opt-out" of mandatory splitting, then the pension benefit must be split in the manner described above.
The regulations also provide spouses or common-law partners who both have pension benefits with additional flexibility, whereby they can agree in writing to divide equally the
difference in values of the two pensions, rather than dividing both pensions on a 50/50 basis.
A surviving spouse or common-law partner of a deceased plan holder, who had a LIRA, must receive the remaining locked-in pension funds and interest earnings, and be given the options of transferring to a LIRA, LIF, LRIF or Life Annuity.
- The surviving spouse or common-law partner is automatically the primary beneficiary, regardless of previously named beneficiaries, a conflicting will, or outstanding debts against the estate.
- If the plan holder dies prior to converting his/her LIF/LRIF to an annuity, the value of the LIF/LRIF balance must be paid to the spouse or common-law partner. The balance may be paid out in cash, or transferred to any other vehicle permitted by Canada
Revenue Agency.
- If there is no surviving spouse or common-law partner, LIRA/LIF/LRIF funds may revert to a named beneficiary of the estate, and may be paid out in cash.
Funds in a LIRA/LIF/LRIF cannot be assigned, charged, anticipated or given as security, and are exempt from execution, seizure or attachment by creditors except to comply with Section 31(2) and 14.1 and 14.3 of the Garnishment Act
C.C.S.M. 20 cG20. Creditors are restricted to a LIF's/LRIF's income stream, once paid to the member.
Once a plan holder decides to purchase an annuity, if married or cohabiting in a common-law relationship, it must be joint reducing to no less than 2/3 upon death of either the plan holder or spouse or common-law partner. If an alternative form of annuity is to be purchased, the institution releasing the funds must have both the spouse or partner and the plan holder sign a
Pension Waiver Form.
Where as evidenced by the written opinion of a qualified medical practitioner, the life expectancy of a plan holder is likely to be shortened considerably due to a mental or physical disability, the LIRA/LIF/LRIF contract may provide for the withdrawal of funds as a payment or series of payments.
- It is the responsibility of the institution releasing the funds to determine whether the condition of the plan holder and the letter provided is sufficient to justify payment of locked-in funds. In addition, a
Pension Waiver Form must be completed prior to releasing the funds.
Where the total funds in a member's LIRA, LIF or LRIF is an amount that when compounded annually at a rate of 6% per year for each year by which the age of the member or former member, as of December 31 of the year the application is filed, precedes his/her 65th birthday, is less than 40% of the Years Maximum Pensionable Earnings
(YMPE) in the plan year in which the application is filed the funds
may be commuted. The
financial institution will determine if the appropriate section of the
legislation applies to the individual.
If the funds are commuted, both the spouse or common-law partner and the member must complete a
Pension Waiver Form.
Other than shortened life expectancy and commutation of small pensions, there are no other exceptions to the locking-in of pension funds. Once locked-in, funds may only be accessed through either an annuity, LIF or LRIF, not a lump sum withdrawal.
An individual may begin to draw an income from their pension funds at any age by converting the LIRA into a LIF/LRIF or life annuity.
No, the plan holder must begin to draw income by December 31st of the year in which he/she turns 69. Therefore, pension funds must be transferred out of the LIRA by the end of the year in which the plan holder turned 69.
Once the financial institution accepts locked-in pension funds, transferred in accordance with the PBA, that institution accepts the responsibility of ensuring those funds are administered accordingly, and are available upon retirement.
More specifically, the institution will be held responsible for any losses that occur due to administration or actions that contravene the PBA. In such instances, the organization will be required to provide the pension that would have been available to the plan holder had his/her LIRA been administered correctly.
When transferring, the transferee institution will only assume liability if the transfer was in accordance with the PBA (see previous section on portability/transfers). This means that the institution transferring funds can be held responsible for the transferee institution administering the funds incorrectly.
Income Stream
LIF
At the beginning of each year, the plan holder must receive the opportunity to determine the amount of annual income to be withdrawn. A formula is used to determine the range of income from which the plan holder may choose. The plan holder must withdraw at least the stated minimum, but no more than the allowable maximum.
The Minimum is determined using the Canada Revenue Agency's minimum RRIF formula.
The Maximum that can be withdrawn in the year is equal to the LIF fund balance multiplied by the applicable prescribed annuity factor.
LRIF
At the beginning of each year, the plan holder must receive the opportunity to determine the amount of annual income to be withdrawn. A formula is used to determine the range of income from which the plan holder may choose. The plan holder must withdraw at least the stated minimum, but no more than the allowable maximum.
The Minimum is determined using the Canada Revenue Agency's minimum RRIF formula.
The Maximum is determined based on the previous year’s investment income earned in the
LRIF.
One Time Transfer of up to 50% of LIF/LRIF
Funds
A LIF or LRIF owner who is at least age 55 may apply for a one-time
transfer under section 21.4 of the Act, which is defined under the
regulation as a “prescribed transfer”, of an amount up to 50% of the
balance in one or more of his or her LIFs or LRIFs to a Registered
Retirement Income Fund (RRIF) which is not locked-in. The RRIF must meet
the requirements of the regulation (“prescribed RRIF”).
The maximum amount available for a prescribed transfer by an applicant
may be affected by:
- any amount that is payable to a former spouse or common-law
partner as required by the credit splitting provisions under section
31(2) of The Pension Benefits Act,
- an order issued by the Maintenance Enforcement Program of the
Department of Justice under The Garnishment Act to enforce a
maintenance order
- an order issued by the Maintenance Enforcement Program under
section 59.3 of The Family Maintenance Act to preserve assets.
A prescribed transfer cannot be made by an applicant who was a
pension plan member unless the applicant’s cohabiting spouse or
common-law partner consents in writing by completing the
“Spouse’s/Common-law Partner’s consent to transfer to a Registered
Retirement Income Fund Contract”.
Yes, under the LIF there is no longer any requirement to purchase an annuity. However individuals may at any age elect to purchase an annuity.
If the plan holder is purchasing an annuity, other than a joint and 2/3rds, both the member and the spouse or common-law partner must have a
Pension Waiver Form signed.
Yes, under the LRIF, there is no requirement to purchase an annuity. However individuals may at any age elect to purchase an annuity.
- If the plan holder is purchasing an annuity other than a joint and 2/3rds, both the member and the spouse or common-law partner must have a
Pension Waiver Form signed.
Prior to the establishment of the LIRA/LIF/LRIF, institutions had to file a MG-1189 form with the Pension Commission every time pension funds were transferred to a Locked-In RSP.
Today, use of the Superintendent's List eliminates the need to file a
MG-1189 with the Commission. All that is required is that institutions follow the transfer procedures as indicated in the legislation.
For a LIF and LRIF, a Pension Waiver Form must be signed by both the member and the spouse or common-law partner, but need not be filed with the Commission. The waiver should remain in the institution's files should any disputes occur at a later date. A waiver need not be signed for transfers between LIFs
or LRIFs, so long as the originally signed form accompanies the transfer.
The prescribed application form must be completed each year when
applying to a financial institution for payment of Temporary Income from a LIF or LRIF.
|
Government Links: