FAQ Marriage Breakdown
THE ACTUARIAL VALUATION
- What is an actuarial valuation (or pension valuation) for the purposes of marriage breakdown?
- What type of pension requires an actuarial valuation?
- Is a valuation required if the pension is in pay?
- Can we use the Maximum Transferable Amount (MTA) for federal public service plans such as The Public Service Superannuation Act (PSSA), The Canadian Forces Superannuation Act (CFSA) and The Royal Mounted Police Superannuation Act (RCMPSA)?
- Can we use a commuted value provided by the employer?
- Do smoking habits have any impact on the value?
- Can actuaries arbitrarily select the valuation assumptions?
- What pension plan provisions are considered in a pension valuation?
APPLYING FOR AN ACTUARIAL VALUATION
- How can I obtain a pension valuation?
- How do I know which legislation applies to the member spouse’s pension?
ONTARIO - NEW REGULATIONS SINCE JANUARY 1, 2012
- How would you summarize the new regulations?
- Can you briefly describe the calculation of the Family Law Value (or Imputed Value)?
- What are some of the things to watch for?
Ways that GML can be of assistance?
THE ACTUARIAL VALUATION
An actuarial valuation is a report prepared by an actuary that provides the present value of the pension asset subject to division in accordance with the applicable regulations and actuarial standards of practice for the purposes of a marriage breakdown.
An actuarial valuation is not required for a pension accrued under a Defined Contribution pension plan. Under that type of plan, the value of the participant’s pension at any time should be equal to the sum of employee and employer contributions with investment earnings. The difference between the values of the funds at marriage and at separation is subject to division. Although a valuation is not required, GML can assist you in at least two ways: 1. to estimate the value of the funds at dates of marriage and/or separation and 2. to calculate the income tax rate payable at retirement (all plans).
We recommend that you contact the plan administrator or GML if you are uncertain about the type of pension plan to which the member spouse belongs.
The pension in pay could be treated as an income or as an asset. The appropriate approach is a legal question. However, actuaries value pensions in pay on a regular basis.
Can we use the Maximum Transferable Amount (MTA) for federal public service plans such as The Public Service Superannuation Act (PSSA), The Canadian Forces Superannuation Act (CFSA) and The Royal Mounted Police Superannuation Act (RCMPSA)?
Here are some of the main reasons the value provided by the federal government under the Pension Benefits Division Act (PBDA) differs from the value calculated for marriage breakdown purposes:
- The Maximum Transferable Amount (MTA) is calculated by the government for a different purpose (transfer mechanism) and may not be appropriate for marriage breakdown purposes.
- For Ontario residents, the MTA is not calculated in accordance with the method of valuation and the assumptions prescribed by the Family Law Act of Ontario to establish the Family Law Value (or Imputed Value).
- The date of valuation is not the date of separation, but rather the date the estimate is prepared with the participant’s age and interest rates applicable on that date.
- The MTA does not necessarily reflect the most likely retirement age of the plan member.
- If the pension is in pay, payments received between the separation and the date the estimate is prepared are excluded from the calculations.
- If the member receives a disability pension, some pension payments may be treated as income replacement and ignored in the calculation of the MTA.
In both Ontario (since January 1, 2012) and Quebec, plan administrators of provincially regulated pension plans have to provide a value for marriage breakdown purposes.
For other pension plans, a commuted value may appear on the pension statement of the member. It is calculated based on different assumptions than those used to calculate the capitalized value for marriage breakdown. Therefore, it may not be appropriate to use a commuted value provided by the employer/plan administrator. Please refer to the previous question for more details on the value provided under federal public service plans.
The standards of practice of the Canadian Institute of Actuaries (CIA) for the purposes of marriage breakdown specify that the actuary should modify the prescribed mortality rates to reflect the member’s or the member’s spouse’s impaired health, if medically determinable. However, the standards further specify that tobacco use (or lack of tobacco use) would not, in itself, be sufficient reason to modify the mortality rates.
In Ontario, under the new rules in place since January 1, 2012, a reduced life expectancy will not be considered unless the member has applied for the withdrawal of the commuted value of pension benefits in circumstances of shortened life expectancy.
No. Because all actuaries are bound to the standards of practice as defined by the Canadian Institute of Actuaries (CIA), most assumptions used to perform a pension valuation are those dictated by the CIA, therefore ensuring a certain consistency between valuations performed by actuaries.
1.0 Benefit Formula
Some plans may be based on career earnings or provide a flat benefit per year of service. Others, like a typical defined benefit plan, will provide a percentage of the final earnings of the participant for each year of service in the pension plan, possibly up to a maximum number of years (full pension). In addition, some plans are integrated with the "Canada Pension Plan (CPP) and will provide a lower benefit on earnings covered by the CPP. A bridge benefit may be payable until the CPP starts.
Some pension plans will provide indexation, that is, the degree to which inflation is reflected in the pension by the plan. Indexing may vary between the pre-retirement and post-retirement periods. Most public sector plans provide for full indexation to reflect inflation both before and after retirement. Most private sector plans provide no definitive post-retirement indexing, although many plans grant ad hoc increases to partially reflect inflation.
(Please note that ad hoc increases are not accounted for in the Family Law value in Ontario.)
3.0 Retirement age
Pension plans define the normal retirement age as well as establish criteria to be met by the member in order to qualify for early retirement. In the case of early retirement, the pension is usually reduced to reflect the fact that it is payable for a longer period of time. However, certain plans will allow for early retirement with unreduced pension if the member meets very strictly defined age/service criteria.
4.0 Death benefit
Most plans will provide a death benefit should the member pass away before retirement. A joint and survivor pension must be provided if the member has a spouse at retirement unless both spouses decide to waive that form of pension. Some plans provide for a guaranteed number of payments after retirement for members who do not have a spouse at retirement.
APPLYING FOR AN ACTUARIAL VALUATION
A) Ontario regulated pension plans
Since January 1, 2012, the employer/plan administrator must provide the pension valuation. It is important to know that the Family Law Value provided by the employer/administrator is before the income tax payable at retirement.
Fill out the Application for Family Law Value available on the Financial services of Ontario website (click here for a direct link Financial Services Commission of Ontario – Family Law Forms), and send it to the plan administrator. A Complete application for Family Law Value includes:
- Form 1 – Application for Family Law Value
- Proof of date of birth
- Proof of starting date of spousal relationship (or Form 2)
- Proof of separation date (or Form 2)
- Contact person authorization if required (Form 3)
- Payment of fees
B) For all other plans
Contact GML to obtain the pension valuation.
- Fill out the GML form: Marriage breakdown Required information for a Pension Valuation.
- As mentioned on the form, we require a statement of pension entitlements from the pension plan administrator as of the date of separation or within a few months of that date. If you do not have that document, we can obtain it directly from the pension plan administrator if the member spouse completes our “consent form”.
- Send the completed form(s) and statement (if any) to GML either by fax (613-842-5044), e-mail (firstname.lastname@example.org) or in person. Please provide specific instructions as to how you would like to obtain the report (e-mail and/or fax and/or regular mail and/or pick up).
- If required, we will send a request for information letter to the pension plan administrator along with the consent form.
- Our standard turnaround time is within 2 weeks of having all the required information. We will do our best to provide valuation reports in a shorter time frame if required (e. g. scheduled mediation).
- Payment (cheque or credit card) is due upon receipt of your report.
The member spouse pension plan will fall under one of the following groups of legislations:
The PBSA applies to federally regulated pension plans. Members of those plans are employed in connection with certain federal works, undertakings and businesses such as banking, communications or transportation. Examples of federally regulated pension plans are: Canadian Broadcasting Corporation, Air Canada, Canada Post, Export and Development Canada, Bell Canada, Nav Canada, OC Transpo (<99), Canadian National, CMHC.
2. The federal public service acts include The Public Service Superannuation Act (PSSA), The Canadian Forces Superannuation Act (CFSA) and The Royal Mounted Police Superannuation Act (RCMPSA).
The PBA basically covers all registered pension plans of employers in Ontario other than those in federally regulated industries (see item 1 above) and the federal public service (see item 2 above). Examples of Ontario regulated pension plans are: OMERS, Teachers, HOOPP, Universities and the Ontario Public Service.
The registered pension plans in which Quebec workers participate are subject to the Supplemental Pension Plan Act. They are mainly comprised of plans sponsored by employers in the private and municipal sectors and some plans in the parapublic sector, whose activities are under provincial jurisdiction. Some registered pension plans are not subject to the Act, including plans in the Quebec public sector (e.g., the RREGOP) and in the federal public sector (see item 2 above), as well as private plans in sectors under federal jurisdiction (see item 1 above).
ONTARIO - NEW REGULATIONS SINCE JANUARY 1, 2012
Bill 133 is in effect since January 1, 2012.
The Bill amends the Family Law Act (FLA) of Ontario and the Pension Benefits Act (PBA) of Ontario.
The PBA amendments apply only to pension plans registered in Ontario and subject to PBA. The PBA amendments include:
- Allowing a lump-sum transfer from the pension plan to the non member spouse or the establishment of a pension payable for the lifetime of the non member spouse (regulations in respect of the latter are outstanding), thereby facilitating property equalization
- The set of rules that must be applied to calculate the value of the pension subject to division (the Family Law Value or the Imputed Value)
- The obligation of employers/plan administrators to provide the Family Law Value within a specific timeframe.
The FLA amendments apply to all pension property, including pension plans that are not subject to PBA. One the FLA amendments specifies that the value of the pension subject to division (the Family Law Value or the Imputed Value) under non Ontario regulated pension plans must be determined in accordance with the regulations “where reasonably possible”… “with necessary modifications” FLA 10.1(2).
It is important to note that the Family Law Value provided by the employer/administrator is a before tax value. The value must be discounted (GML offers this service) before it can be compared to or added to the value of other assets of the family property.
For Defined contribution pension plans, the Family Law Value is calculated based on an added-value approach, which is the difference between the value at separation and the value at the start of the spousal relationship.
For Defined benefit pension plans, the Family Law Value is equal to a percentage of the Preliminary Value, where the percentage is function of the period extending from the date of marriage (or the date determined in accordance with the regulations) and the Family Law Valuation Date (FLVD).
The Preliminary Value is a single value equal to the weighted average of 2 or 3 commuted values (CV). The weights are based on the number of years until the pension holder’s earliest unreduced retirement age. The closer the participant is to that age, the more weight given to the value that presumes retirement at the earliest unreduced age.
If the pension is not in pay at the Family Law Valuation Date (FLVD) and the participant is not eligible to an unreduced pension – the Preliminary Value is the weighted average of 3 CVs based on
- A: Optimal retirement age assuming termination of employment
- B: Normal retirement age
- C: Earliest unreduced retirement age assuming continued service
If the pension is not in pay at the Family Law Valuation Date (FLVD) and the participant is eligible to an unreduced pension - the Preliminary Value is the weighted average of 2 CVs based on
- B: Normal retirement age
- F: Immediate retirement
Exclusions that will significantly disadvantage the non-member spouse
- Non-guaranteed (ad hoc) pension indexing
- Excess contributions
- Non-vested entitlements
- Non-disclosure of pension entitlements
Elements that may significantly disadvantage the plan member
- Economic assumptions / Unisex mortality (if member is male)
- Forgetting to apply the income tax adjustment on the Family Law Value
- Interest on Imputed Value v. equalization payment
- Repayment of deemed arrears for pension in pay
1. GML can calculate the applicable income tax rate
The Family Law Value provided by the employer/administrator is a before tax value. The value must be discounted before it can be compared to or added to the value of other assets of the family property.
It should be noted however that the value before adjustment for income tax should be used in the case where there is a transfer of registered funds.
2 GML can also:
- verify the accuracy of the Family Law value provided by the employer/administrator
- assess the impact of some of the exclusions outlined in the question What are some of the things to watch for? or extreme situations (shortened life expectancy, retirement age)