The Ontario government's reform of the law governing pension division on marriage breakdown appears to finally be moving forward with the release of long-awaited draft regulations.

Reform of the marriage breakdown provisions in the Ontario Pension Benefits Act (PBA) began with the passing of Bill 133, the Family Statute Law Amendment Act, 2009, on May 14, 2009. These legislative provisions cannot come into force, however, until the regulations needed to support the legislation are passed.

Under the current regime in Ontario, upon marriage breakdown a non-member spouse cannot access any portion of the member's pension until the member terminates employment or retires. Under the new regime, if the member has not yet retired on the valuation date, the non-member spouse can receive a lump sum payment from the pension plan. If the valuation date is after the member's retirement, then the non-member spouse can receive a portion of the member's monthly pension payments.

On March 3, 2011, after much delay, the Ontario government finally released draft regulations that contain most but not all of the content required to implement the new pension-splitting regime under the PBA (click here to view the government's announcement). In particular, the draft regulation outlines the pension valuation methodology, including rules for calculating both the "preliminary value" of the member's pension (the total value of the pension up to the "family law valuation date"), and the "imputed value" of the member's pension (the portion of the preliminary value attributable to the period of marriage).

The formula for determining the preliminary value of an active member's pension is quite complicated. In essence, the formula takes the average of three calculations of the commuted value of the pension benefit:

  1. the commuted value for termination purposes;
  2. the commuted value assuming the member's pension starts at age 65; and
  3. the commuted value assuming continued employment to the earliest date the member could receive an unreduced pension, including the value of any bridge benefits.

The three components of the average are assigned different weight depending on how far away the member is from the earliest unreduced retirement date, assuming continued employment. The further the member is from retirement, the more weight is assigned to the commuted value for termination purposes and the less weight is assigned to the other two calculations, etc. The formulae for calculating the commuted value of the benefits of a deferred vested or retired member are much simpler.

The regulations also contain details on the impact on the calculation if the member is not vested or has applied for a withdrawal of benefits based on shortened life expectancy, or if the pension plan has been wound up in whole or in part, or a payment of plan surplus to the member is pending.

Once the preliminary value of the member's pension has been calculated, then the imputed value is determined as a portion thereof, based on the period of pension membership during the marriage period versus the entire period of pension membership. Interestingly (and perhaps controversially to some), this pro rata method is to be used for calculating the imputed value not only of defined benefits but also of defined contribution benefits.

The draft regulations are not yet in force. When the draft regulations were released, the Ontario government also published a consultation paper seeking comment on several outstanding issues, including a valuation methodology for "hybrid" (combination defined benefit/defined contribution) plans. The period for comments on the draft regulations and the consultation paper has closed. Given that the legislation was first introduced in 2008, it is hoped that final regulations will be passed soon so that the legislation may be brought into force.

Douglas Rienzo practises exclusively in the area of pensions and employee benefits, with a particular focus on pension surplus issues and family law issues related to pensions.

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