New Pension Legislation in Ontario Effective January 1, 2012

Money pile representing someone's pension

Matthew Krofchuk has written an excellent blog at Divorce Happens Blog regarding the changes to the pension division legislation in Ontario which came into effect January 1, 2012. Matthew is with Krofchick Valuation so knows his stuff.

The biggest impact of the new legislation is that you can now divide Ontario pensions at source if you want. So, let’s say you have a pension worth $60,000. In the past, you would have to give your spouse $30,000 to equalize the value of this asset if all other assets and debts were equal. Now, you can arrange to have your pension plan transfer to your spouse $30,000 into a locked-in savings vehicle (LIRA).

Here is Matthew’s blog… it explains it well…

“Beginning January 1, 2012 new legislation passed by the Ontario legislature will result in a dramatic change in the way pension assets are divided between divorcing couples in Ontario. According to the Ontario Family Law Act (FLA), the value of married spouses’ pension assets must be included in family property, so the new pension rules could potentially affect a large number of married people in Ontario.

Are you one of them?

Well, for starters, the new rules – formally known as Bill 133 – only apply to spouses where no court order, family arbitration award, or domestic contract that provided for the division of pension assets between the two spouses was made before January 1, 2012. If you’ve entered into any one of these arrangements before the end of 2011, you’ll have to stick it out under the old rules.

The new rules also affect only those pensions covered by the Ontario Pension and Benefits Act, or in other words, provincial pensions. So if you or your spouse is a member of a pension plan that operates at a nationwide level like those available to federal public service employees or banks, for example, the value of the marital pension will be calculated in exactly the same way it was before. Provincial plans, however – like HOOPP, OMERS, and Ontario Teachers’ Pension Plan – will be directly affected by the new rules and there will be a number of changes divorcing spouses with pensions like these should be aware of.

The first major change involves just who’s calculating the value of the pension. Pensions are currently valued by third party actuaries retained either by one (or both) of the divorcing spouses or their lawyers. The new rules, however, no longer give divorcing couples this option. Beginning in 2012 divorcing spouses will have to apply directly to the pension plan administrator to calculate the value of the pension to be divided as net family property. You will need to appeal to them directly by filling out a form from the Financial Services Commission of Ontario’s (FSCO) website and they will likely charge a fee for their services.

The new rules also allow divorcing spouses to transfer the value of the member spouse’s pension in the form of a lump sum payment if they desire; this option was not available under the old rules. Previously, the only way that a spouse could receive their portion of their partner’s pension was either as a percentage of monthly pension benefits, when they became payable, or indirectly through negotiating their settlement (kind of a, “you get the house and I’ll keep my pension” arrangement). It’s important to know that this new lump sum option is just that: an option. Spouses can still elect to go at it the old fashioned way if they desire.

The last big change involves how the value of the pension is calculated. As they relate to pension valuation the new rules don’t contain any provisions that require the spouses to do anything over and above what they already do; you still have to get that pension valued. However, the pension administrators – now the folks in charge of calculating the value of these pensions – will not be applying traditional actuarial practices in valuing them. The new rules mandate that all pension valuations be performed using a prescribed formula that should apply to all pensions.

This last change appears to result from an effort by the province to minimize conflict and lengthy court proceedings. By setting out a simple formula for the administrators there’s very little room for either party to argue or to revisit the calculation at some later date in light of a change in circumstances, both of which were not uncommon under the old rules. The downside to this approach, however, is that not all pensions are created equal (and certainly, not all divorcing couples are either). The new rules don’t make any provisions for the kinds of unique circumstances that could impact the value of pensions – like retirement ages or health issues – but unless the Courts decide that these issues should be taken into account as they arise, we’re probably stuck with them for the time being.”

By Matthew Krofchick

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