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DIVIDING PENSIONS UNDER THE PENSIONBENEFITS ACT OF SASKATCHEWAN

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David WildSuperintendent ofPi1.nsions

Saskatchewan Justice1stFloor, 1871 Smith St.Regina, Sask. S4P 3V7 .

Ph:787~7650 Fax: 787-9779

BIOGRAPHICALINFORMATION

David Wild

David earned a ..degree .in Business.·Administration from.the· Universityof.Regina in 1979.. He has..significant experience as a pension plCinadministrator having been the Director of Pensions with the publicEmployees BenefitsAg~ncy• D.Dave has also W()rkeda$anassetrnanagementconsultantfqra nfitionalfirm providing advice to pensions plans...10.1992,.he chaired the Pension.Benefits ActReviewPanel'Nhichreceived public submissions and made recommendations resulting in a significant reform of.f.• pensionlegislation..·He..has presentedpapers on pensionmatters tosuchdiverse groups.asthe Cflnadiao.<Pensiori& Benefits Conference, the Canadian Institute.of Actuaries, family law lawyers and .the .. SaskatchewanFederation of Labour. Dave is Superintendent of Pensions with the Pension Benefits Branch·· of

.Saskatch~wanJusticein Regina;

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Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1

Objective of The Pension Benefits Act, 1992 . . . . . . . . . . . . . . . . . . . .. 2

Jurisdiction 2

Methods Available for Division 6

Valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9

The Value of a Pension Benefit Accrued Before Marriage . . . . . . . . .. 15

After the Division 17

Appendix: Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20

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1

Introduction

In 1993, the Government of Saskatchewan made substantial changes to The Pension

Benefits Act, including the introduction of an approach to allow the division of pension

benefits on marriage breakdown. The area remains complicated by its nature and as a

result of a bewildering jurisdictional structure in which one in three Saskatchewan

pension plan members is subject to pension benefits legislation other than The Pension

Benefits Act.

The speakers today should be able to provide you with some insight into the

jurisdictional issue. We also should be able to point you in the right direction in seeking

answers to technical questions. However, to gain a deeper understanding of pension

plans, in general, and the issues surrounding the valuation and division of pension

benefits, in particular, I recommend two excellent reports: Report on the Division of

Pensions on Marriage Breakdown prepared by the Law Reform Commission of British

Columbia (Report No. 123)(Vancouver: Ministry of Attorney General, January 1992)

and Report on Pensions as Family Property: Valuation and Division prepared by the

Ontario Law Reform Commission (March, 1995). I find Tom Anderson, Commissioner

of the Law Reform Commission of British Columbia, to be a particularly useful source of

advice and assistance.

For those of you inclined to 'surf the net', the Law Reform Commission of British

Columbia has an internet website on dividing pensions. The address is

http://www.lawreform.gov.bc.ca.

When I addressed family law lawyers two years ago, the basis for my remarks was a

paper prepared by the Pension Benefits Branch titled "Division of Pension Benefits on

Marriage Breakdown". I do not intend today to canvass the paper, but rather to focus

on a few issues in more depth. The papeTis available from our branch on request.

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Objective of The Pension Benefits Act,· 1992

Let me begin by disclosing my bias. The Pension Benefits Act is a relatively complex

piece of legislation to interpret and to apply. However, the Act enjoys the benefit of

having a clear focus. The Pension Benefits Act has as its objective the protection of the

accrued pension entitlements of pension plan members. In the vernacular of land use,

we are conservationists, not developers. This inclination is evident in the wording of the

Act, including the legislative scheme for the division of pension assets on marriage

breakdown.

Jurisdiction

As mentioned, not all pension plans operating in Saskatchewan are subject to .The

Pension Benefits Act. There are several federal and provincial public sector plans

which are governed by their own legislation. As well, the pension plans of certain

industries, such as banking and transportation, are federally regulated under the

Pension Benefits Standards Act (Canada). Although the policy-makers and the

legislators appear to be genuinely interested in reducing unnecessary differences in the

rules which govern pension plans, lawyers must be aware that pension legislation is not

uniform.

I have attached to my remarks for your reference a summary of the pension plans

which are not subject to The Pension Benefits Act, 1992 (Saskatchewan). My best and

only advice on this issue is that your first question to a pension plan administrator

should be: what legislation governs the administration of your pension plan?

You should be aware of two other issues with respect to jurisdiction.

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(1) RRSP/RRIF Ys. LlRAI LIF/LRIF

A registered retirement savings plan (RSP) is a contract between an individual and an

authorized insurer, trustee or corporation which meets the requirements of, and is

registered under, the Income Tax Act. It allows individuals to obtain tax shelter on their

retirement savings. At anytime funds may be withdrawn, used to purchase an annuity

or transferred to a registered retirement income fund (RRIF).

A RRIF was introduced to the Income Tax Act as an alternative to a life annuity when

settling an RRSP. Relative to a life annuity, the RRIF allows the individual more control

over the investment of funds after the RRSP matures and more flexibility in the timing

and the amount of the payment of pension income.

With the exceptions I will address next, pension legislation does not regulate either

RRSPs or RRIFs. That is the case even where a group RRSP is sponsored by an

employer or an association. The division of assets in a RRSP or RRIF on marriage

breakdown is simple and well understood.

Public policy with respect to registered pension plans has evolved over the years in the

direction of giving more control to individual plan members. In 1993, The Pension

Benefits Act was amended to provide certain plan members with the right to transfer

the value of their pension entitlements from their pension plans. To accommodate

those transfers, while ensuring that the objectives of The Pension Benefits Act are met,

the locked-in retirement account (LIRA) was established by section 29 of The Pension

Benefits Regulations, 1993. A LIRA is an RRSP which is required by the regulations to

contain certain contractual features.

In the same year, regulations under The Pension Benefits Act introduced the life

income fund (LlF) and the locked-in retirement income fund (LRIF) as alternatives to life

annuities as the ultimate settlement of pension funds. A LlF or LRIF is a RRIF which

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also is required by the regulations to contain certain contractual features.

Therefore, while we do not regulate RRSPs and RRIFs, we do regulate L1RAs, L1Fs

and LRIFs.

This is important in three regards. First, L1RAs, L1Fs and LRIFs are divisible on

marriage breakdown. A LIRA contract must provide that it is subject to Part VI of The

Pension Benefits Act (the division provisions) and L1Fs and LRIFs are forms of pension

and therefore, would be divisible as would a pension in pay.

Second, L1RAs, L1Fs and LRIFs are contractually bound to restrict transfers to other like

vehicles. There is no provision which would allow a transfer from a Saskatchewan

LIRA, L1F or LRIF to a LIRA, L1F or LRIF regulated by another jurisdiction, even if the

owner of the contract resides in another province. For example, if an individual

transfers money to a Saskatchewan LIRA and subsequently moves to B.C., the money

must remain in a Saskatchewan LIRA and cannot be transferred to a B.C. LIRA.

However, nothing would prevent a financial institution located in B.C. from

administering a LIRA which met the requirements of Saskatchewan regulations. That is

why the B.C. credit unions are represented on the Saskatchewan's list of filed LIRA

contracts.

Third, some pension plans which are not regulated by The Pension Benefits Act allow a

transfer of funds to L1RAs, L1Fs and LRIFs. Once the money is in the LIRA, L1F or

LRIF, the terms of the contract, as required by our regulations, must apply without

modification. The large defined contribution pension plan for Government of

Saskatchewan employees is the most notable example of a nonregulated plan which

uses L1RAs, L1Fs and LRIFs.

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(2) The Matrimonial Property Act ys. The Pension Benefits Act

The Government of Saskatchewan placed a scheme for the valuation and division of

pension benefits on marriage breakdown in The Pension Benefits Act and not The

Matrimonial Property Act. That may have more to do with opportunism than policy

considerations. Nevertheless, an argument can be made that the scheme should be

found in The Pension Benefits Act, as that Act gives plan administrators, employers,

employees and others a complete framework for dealing with pension matters, as well

as a regulator to promote the consistent interpretation and application of the Act. As

well, because the amendments to The Pension Benefits Act were drafted to reflect case

law in Saskatchewan, the government remained relatively confident that the Courts

would use the scheme in most instances. Working in The Pension Benefits Act, and

not The Matrimonial Property Act, also gave the legislators the luxury of haVing well

defined policy parameters and avoided the need to develop a legislative scheme which

satisfied everyone. The goal could be a relatively more modest one of assisting the

parties to most divisions.

However, not having the scheme in The Matrimonial Property Act may have

implications for those plans regulated by the federal government's Pension Benefits

Standards Act, 1985. Section 25 of that Act provides that pension credits may be

divided in accordance with "applicable provincial property law" and that "provincial

property law" means "the law of a province relating to the distribution, pursuant to a

court order or agreement between the spouses, of the property of the spouses on

divorce, annulment or separation". We have not had the point tested in court, but a

strong argument could be made that Part VI of The Pension Benefits Act, 1992

(Saskatchewan) would not apply to federally regulated plans because the Act does not

meet the definition of "provincial property law".

Of more significance, a division of pension entitlements can proceed under The

Matrimonial Property Act without reference to The Pension Benefits Act provided the

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parties do not involve the pension plan in the valuation and the division of property.

Several lawyers have stated that the valuation approach offered by The Pension

Benefits Act is simple to apply, but unfair to the non-member spouse under certain

circumstances. The location of the legislative scheme in The Pension Benefits Act

gives you or the Courts the flexibility to overcome this unfairness. To do so, however,

the division must be settled outside of the pension plan.

Methods Available for Division

The flexibility offered by having the legislative scheme in The Pension Benefits Act

means that a number of approaches to dividing pension benefits on marriage

breakdown are available:

1. A "valuation and transfer" division, under which the pension plan would transfer to a

locked-in pension vehicle for the non-member spouse the value of the non­

member's distributive share.

2. A "valuation and accounting" division, under which the pension benefit would be

valued and the member spouse would pay the non-member spouse in cash or other

property the value of the non-member's spouse distributive share of the value of the

pension benefit.

3. An "if and when" or "benefit split" division by the plan administrator, under which the

plan administrator would pay the pension benefit, whatever it might be, to the

member spouse and the non-member spouse in proportion to their respective

distributive share of the pension benefit when the benefit becomes payable.

4. An "if and when" or "benefit split" division by the member spouse, which is the same

as 3, except that it would be the member spouse, not the plan administrator, who

would pay the non-member spouse.

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5. A "provision of a separate pension" division, under which the pension plan would

provide the non-member spouse with a pension based on the value of the non­

member's distributive share and disjoined from the member spouse's pension.

A "valuation and transfer" division is contemplated by The Pension Benefits Act where

the member spouse is not eligible to retire with an unreduced pension. The value of

the pension benefit to be divided is provided by the pension plan administrator to the

parties. The value is determined as if the member spouse had terminated membership.

The administrator will then act on a court order or an interspousal agreement to divide

the value of the pension benefit, provided the division does not result in a reduction of

more than 50% of the total value of the member spouse's pension benefit. The non­

member spouse's distributive share must be transferred to a locked-in retirement

account, ultimately to be used to provide the member spouse with a pension.

There are several advantages to this approach:

• The pension plan administrator provides the value of the pension benefit, ona

prescribed basis and at no charge. The parties avoid the confusion and expense of

having duelling actuaries.

• Because the pension plan is the source of funds for the division, the member

spouse has no liquidity considera~ions.

• Relative to an "if and when" approach, the division is completed quickly and there is

no interdependence between the life experiences of the member spouse and the

benefit paid to the non-member spouse. The date at which the non-member

spouse's pension commences and the form that the pension takes is controlled by

the non-member spouse, subject to any general limitations imposed on pensions by

federal and provincial legislation.

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Before The Pension Benefits Act was reformed, a "valuation and accounting" division

was the only immediate settlement option available. It remains appropriate where it is

agreed that the member spouse's pension should remain intact or where the non­

member spouse has a preference for cash or some asset other than locked-in pension

money. As previously mentioned, it also is a useful approach where it is agreed that

the valuation provided by pension legislation does not reflect what the parties or the

Courts regard as the fair value of the benefit.

The advantage of the "if and when" division is that the non-member spouse has an

opportunity to receive a benefit which has a value approaching that produced by using

the "retirement" method. With respect to a pension plan with a benefit based on salary

at retirement or on average rates of salary over a specified and limited period, the non­

member spouse stands to gain substantially relative to a "valuation and transfer"

division. That, of course, is provided the retired member spouse does not die

prematurely.

From a practical perspective, the "provision of a separate pension" division is not likely

an option. Pension plans are permitted by legislation to provide to a non-member

spouse a pension based on the non-member spouse's distributive share, but are not

required to do so. I am not aware of any pension plan which is willing to take the non­

member spouse into the plan as a member.

This last method is not to be confused with the approach adopted by the B.C.

government. Under the B.C. scheme the non-member spouse is entitled to the status

of a limited member of the plan. The non-member spo.use can decide to receive

benefits at any time a member could decide to retire and would receive as a pension a

proportionate share of the pension that would have been payable to the member

spouse if the member had retired. The pension payable to the non-member spouse

does not track the experience of the member spouse. The death of the member after

the spouse elects to receive benefits has no affect on the spouse's entitlement.

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Valuations

There are two types of pension plans: defined contribution plans and defined benefit

plans. As at January 1, 1995, about 172,000 Saskatchewan workers participated in

1,350 pension plans. Approximately, 55% of the plans were defined benefit in nature;

64% of all members participated in those plans. This, by the way, is unusual.

Nationally, almost 90% of plan members participate in defined benefit plans.

Saskatchewan is noted for having three large defined contribution plans: the Public

Employees Superannuation Plan and the Capital Pension Plan for public sector

employees and the Co-operative Superannuation Society Pension Plan for employees

in the co-operative sector.

A defined contribution plan provides that a member's benefit is determined solely by

reference to what is provided by contributions made by or for the credit of a member

together with interest. Therefore, the valuation and division of benefits under a defined

contribution plan on marriage breakdown is usually straightforward. Where the pension

is vested, the value of the member's benefit is the accumulated value of employee and

employer contributions plus interest. Where the pension is not vested, the value of the

member's benefit is only employee contributions plus interest.

A defined benefit plan is designed to prOVide a member with a specified amount of

pension benefit based on a formula. Therefore, the value of the pension benefit

accrued under a defined benefit plan is the present value of expected future payments.

Complications arise because the expected future payments are uncertain. The plan

provides a particular, and perhaps different, benefit depending on certain triggering

events: termination of employment, death prior to retirement, early retirement, normal

retirement, late retirement, and death after retirement. Therefore, to begin to place a

value on the benefit accrued under a defined benefit plan, we must make some

judgement as to the likelihood that a particular triggering event will occur to the

) . member. A defined benefit pension is a future and contingent asset. In this regard, a

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defined benefit pension plan has a strong insurance element.

We have all sorts of group experience studies on mortality rates, termination rates, and

retirement rates, as well as analysis on inflation and rates of return on investment. It is

these studies that allow an actuary to conduct a reasonable valuation of a pension plan.

The averages hold when dealing with a large enough group of employees - the

overestimations cancel the underestimations. However, each of the parties to a

division of a pension entitlement on marriage breakdown has a vested interest in

promoting a particular picture of how the future shall unfold. Forget the law of

averagesl

Let me illustrate what I am talking about by discussing two issues which cause the most

debate with respect to the valuation of benefits under defined benefit plans.

Some plans are designed to provide a pension based.on the member's salary at

retirement or on average rates of salary over a specified and limited period. For

example, the plan might pay a pension based on a formula of 1.6% of the average of

the member's best five years of salary per year of service. Effectively the member has

earned a pension entitlement which retroactively and automatically improves each time

the member's salary. increases.

At issue in valuing the member's benefit is whether the"member will continue in

employment after the date of valuation and enjoy salary increases. At one extreme is

the "termination" approach which provides a value on the presumption that the member

spouse terminates employment on the date of valuation and, therefore, will have no·

further increases in salary. At the other extreme is the "retirement" method which

assumes in valuing the ·member spouse's accrued benefit that the member spouse will

continue employment to retirement and will receive future salary increases.

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I should emphasize that this issue is exclusive to final or best average earnings type of

defined benefit plans. The accrued pension entitlements under flat benefit plans (i.e.,

pension =$32 per month per year of service) and ,career average earnings plans (i.e.,

pension = 1% of annual earnings) are not indexed to future salary increases. Final or

best average earnings plans dominate the public sector. Nevertheless, about 48,000

Saskatchewan plan members (28% of the total) belong to a flat benefit or career

average defined benefit plan.

The other issue I want to touch on is the date of retirement. This issue could apply to

any type of defined benefit plan.

Pension plans are designed to pay a particular pension at the plan's normal retirement

age. The Pension Benefits Act does not set the normal retirement date, but requires

each plan to specify a date. This is most commonly age 65. The Pension Benefits Act

also requires a plan to offer an entitlement to commence a pension at any time on or

after the date that is 10 years prior to the plan's normal retirement date. A plan is not

precluded from offering even earlier retirement or from offering retirement based on an

age plus service factor.

Many plans provide that a pension payable on early retirement must be reduced to be

the actuarial equivalent of a pension payable at the normal retirement date. For such

plans, the age at which the member spouse is expected to retire is not relevant to the

value of the member spouse's benefit for purposes of division.

However, many other defined benefit plans offer some incentive to retire early. That

might take the form of a bridge benefit, which is a temporary benefit payable in addition

to the pension benefit. It is usually payable from the early retirement age to the normal

retirement age. The early retirement incentive also may take the form of a reduction in

the pension benefit which is less than that required to provide an actuarial equivalent.

For example, instead of a reduction of 6% of the pension for each year the member

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retires before the normal retirement age, the reduction is of 3%. If early retirement

incentives are present in the plan, then the expectation as to when the member spouse

is going to retire from the plan will have an important bearing on the value of the

member spouse's pension and the non-member spouse's share.

To further complicate the matter, several plans provide that early retirement incentives

are available only if the member remains employed until retirement and receives a

pension from the plan. If the member terminates before being eligible for retirement the

benefit would not be payable.

So how are these issues handled in determining the value of the member spouse's

pension benefit for purposes of division?

If you directly engage an actuary, the actuary will prepare the valuation under the

gUidance of the Canadian Institute of Actuaries' Standard of Practice for the

Computation of the Capitalized Value of Pension Entitlements on Marriage Breakdown

for Purposes of Lump-Sum Equalization Payments. The Standard establishes common

ground for actuaries on several important issues. However, it does not address

whether the retirement or termination method is be used and what retirement age is to

be assumed. The room for actuarial jUdgement means that two actuaries can justify

different values for the same pension benefit The Standard does not bridge the

adversarial positions found in a division of pension entitlements on marriage

breakdown.

If you seek the value of a pension from the administrator of the pension plan, the

administrator will engage the plan's actuary to determine the valuation under the

guidance of the CIA's Recommendations for the Computation of Transfer Values from

Registered Pension Plans on the presumption that the member spouse terminated

membership in the plan on the date to be used to value the marriage property. These

guidelines are the same ones used when a member actually terminates membership.

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There is little room for actuarial judgement in this standard. Two actuaries will arrive at

the same number for a given pension benefit.

Because termination of membership is assumed, potential future salary increases will

not be reflected in the value of a member spouse's benefit from a final or best average

earnings defined benefit plan. Also, any benefits which are dependent on the member

spouse working until retirement would be excluded. On the other hand, the "transfer

value" standard requires the actuary to assume an early retirement date which

produces the highest value of the member spouse's pension entitlements.

I once heard a speaker state that The Pension Benefits Act adopted a termination

valuation because it is easy for pension plan administrators. That isn't entirely correct.

Many of the larger plans deal in sufficient volumes of member terminations that they

have purchased or developed software to replicate the work of an actuary. In that

context, using the transfer value is economical for many plans. However, determining

the termination value of a pension benefit is complicated. Plans which do not have this

software are incurring costs of $500 - $1000 per calculation. If the government wanted

simplicity for administrators it would have kept the old scheme of having plans not

participate in a division on marriage breakdown.

The government adopted the termination valuation because it manages the risk of

transferring too much money from the plan. The member spouse's pension entitlement

must be recalculated after the division to reflect the amount transferred to the non­

member spouse. There is no opportunity later for the plan to correct either the member

spouse's benefit or the amount transferred to the non-member spouse for assumptions

which do not come true. Using the retirement method would expose the plan, and

therefore, the plan's beneficiaries, to the risk of adverse experience. The termination

valuation is a conservative valuation and might do a disservice to a non-member

spouse, but the policy is entirely in keeping with the focus of The Pension Benefits Act.

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The Courts have not been entirely satisfied with either the retirement or the termination

approach. Generally, the Courts have found the termination method to be appropriate

where the member spouse is relatively far away from retirement and have directed

either the use of the retirement method for valuation or a benefit split where the

member is approaching retirement. Although on the surface this appears to be

arbitrary, the Court's thinking is probably a reasonable reflection of group experience

and produces a sensible result. The rates of termination for young or short service

employees are very high; it is not uncommon for a plan to have six members terminate

employment for every member who retires. On the other hand, after 15 - 20 years of

service, rates of termination drop to a very low number.

In Knippshild v. Knjppshild, Mr. Justice Klebuc brought even more precision to the

valuation of pension entitlements. Mr. Justice Klebuc ordered a division based on the

retirement method using a "most likely" early retirement date, notwithstanding that Mr.

Knippshild was more than seven years away from the earliest possible retirement.

However, Mr. Justice Klebuc also ordered the value be discounted for time-related

contingencies such as premature death and loss of job.

I thought the decision reflected a good understanding of the nature of defined benefit

plans and Mr. Knippshild's partiCUlar circumstances. However, I would not relish having

to draft regulations to establish such a framework in legislation. We have good raw

data on group experiences. However, experience can vary by plan and by individual.

For example, some law-enforcement groups show disability as the cause of a large

majority of retirements under their plans, but we rarely find a disaoility retirement in

plans for white-collar workers. As another example, the incidence of early retirement is

lower where the amount a pension is low relative to a worker's pay than if the pension

were more generous..

Mr. Justice Klebuc also presented alternative approaches to the calculation of values as

food for thought. He obviously spent considerable thought and effort on his analysis.,_J

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Perhaps his most telling conclusion, though, was when he echoed the observation of

Gerwing, J.A. in stating, "In my view the sought after guidelines (on the division of

pension entitlements) must be created on a case by case basis".

The Value 01 a Pension Benefit Accrued Before Marriage

Let me turn to the first of two topics which receive relatively vague treatment Linder The

Pension Benefits Act.

The Matrimonial Property Act provides that the fair market value of property owned by a

spouse before the marriage should be excluded from division. There are three general

approaches to determine the value of pension entitlements which accrued during the

marriage period. I will illustrate the approaches by example.

At the date of marriage, the member spouse had 5 years of service, which at that date

had a value of $3,000. Had the member terminated on that date, the pension payable

at retirement would be $1,000. At the date of valuation for division purposes, the

member spouse had 25 years of service with a value of $250,000. Had the member

terminated at that date, the pension payable at retirement would be $30,000.

Using a value added approach, the value of the pension benefit accrued during the

marriage would be the difference between the value of the member spouse's pension

as at the date of marriage and as at the date of division:

$250,000 - $3,000 =$247,000

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We also could prorate the value of the member spouse's pension based on the benefit

payable from the plan:

($30.000 - $1,000) x$250,000 = $241,667$30,000

Another approach is to prorate the value of the member spouse's pension based on the

years of service:

(25-5) x $250,000 =$200,00025

The Pension Benefits Act has a provision which prevents an amendment to a plan to

reduce a person's accrued benefits. Under a defined benefit plan, a reduction in

accrued benefits means an adverse change to the formula used to determine the

benefits payable by the plan. In other words, under a defined benefit plan a member

accrues entitlements rather than values. The adverse amendment provision does not

prevent a reduction in the value of accrued benefits due to circumstances outside the

plan and inherent in the calculation of the value of the benefits. For example, the

commuted value of a member's benefits is very sensitive to changes in interest rates.

In fact, the concept that a defined benefit pension entitlement has a value is a construct

which pension legislation has found useful in certain circumstances such as to allow

lump sum transfers from a plan on termination of employment, on termination of the

plan or on marriage breakdown.

In determining the value of a pension benefit brought to a marriage, we believe that a

proration on service or benefit is more consistent with the nature of defined benefit

plans and pension legislation than the value added approach.

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After the Division

(1) Survivor Benefits

In addition to the many issues involved in the valuation and division of pension benefits

on marriage breakdown, counsel needs to be aware of the consequences of a division

with respect to survivor benefits and the member spouse's pension entitlement.

First, some background on survivor benefits. Section 33 of The Pension Benefits Act

provides that on the death of a member before retirement, a survivor benefit is payable

to the spouse of the member in the form of a pension. Section 34 of the Act requires a

pension to be paid to a retired member in a form which ensures that, on the death of

the retired member, the spouse of the retired member would receive 60% of the

pension to which the retired member was entitled. A spouse cannot waive entitlement

to the pre-retirement survivor benefit, but can waive entitlement to the post-retirement

survivor benefit at the time of retirement.

The Act recognises a common law spouse (provided the one year cohabitation

requirement is met) if the member or retired member does not have a married spouse.

A married spouse takes priority even if living separate and apart from the member. The

Act provides that a married spouse is disentitled to the survivor benefit only if on

marriage breakdown a division of the member spouse's pension entitlement has

occurred. As well, if a divorce has taken place, the non-member spouse would no

longer meet the requirement to be "married to the member" and would not be entitled to

survivor benefits.

Here are some points to consider:

• If a couple separates, but does not divorce, and does not settle their matrimonial

) property, then the non-member spouse retains entitlement to survivor benefits even

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if the member spouse subsequently enters into a common law marriage.

• If a couple separates or divorces and pension money is transferred to the credit of

the non-member spouse, the non-member spouse would not retain any entitlement

to survivor benefits payable pursuant to the member spouse's remaining

entitlement.

• If a couple divorces prior to retirement, but settles the pension property through a

benefit split, then the non-member spouse would not be beneficiary of any survivor

benefits payable on the death of the member spouse. The pension being paid to

the non-member spouse would stop on the death of the member spouse.

• If a couple separates prior to retirement, but settles the pension property through a

benefit split, then the non-member spouse would be entitled to receive the post­

retirement survivor benefit unless he or she waives that entitlement at retirement.

The pension being paid to the non-member spouse would stop on the death of the

member spouse, but would be replaced by the survivor's pension.

• If a couple separates or divorces after retirement, the non-member spouse would be

entitled to receive the post-retirement survivor benefit unless he or she had waived

that entitlement at retirement.

(2) Recalculation of Pension for Member Spouse

After a division, a member spouse's entitlements under the plan must be recalculated

to reflect the division. Depending on the nature of the plan,the administrator could

directly offset the member's benefits or account value by a specific amount determined

at division.

)19

The plan must be able to demonstrate that other beneficiaries of the pension plan will

not suffer as a result of the division. In other words, the sum of the value of the divided

pension entitlements cannot exceed the value of the pension benefits before the

division. On the other hand, the plan cannot take advantage of the member in the

recalculation. The plan need only demonstrate cost neutrality at the time of division

bases on a balance of probabilities. The circumstances after a division could result in a

member being advantaged or disadvantaged by the adjustment made.

We would not allow, for instance, a reduction in the number of years of service credited

to a member of a final or best average earnings pension plan. Because future salary

affects past benefits and because termination of employment has not occurred,

reducing service in such plans would cost the member to the benefit of the plan.

20

Appendix A

Jurisdiction

Essentially, The Pension Benefits Act, 1992 applies to all employer-sponsored pension

plans with Saskatchewan residents as members. A ·plan· means a plan, scheme or

arrangement organized and administered to provide pensions and pursuant to which an

employer is required to make contributions on behalf of the members.

There are several plans which are not regulated by the Act:

1. Subsection 3(2) of The Pension Benefits Regulations, 1993 provides that a plan

does not include:

• an employees profit sharing plan or a deferred profit sharing plan as

defined in sections 144 and 147 respectively of the Income Tax Act

(Canada);

• an arrangement to prOVide a retiring allowance as defined in subsection

248(1) of the Income Tax Act (Canada);

• the supplemental plan defined in clause 2(1)(hh) of The Pension Benefits

Act, 1992 if, under the plan to which it is supplemental, the members are

entitled to benefits from that plan at least equal to the maximum benefit or

contribution limit pursuant to the Income Tax Act (Canada);

• that part of a plan which provides benefits or pensions insured under a

contract issued pursuant to the Government Annuities Act (Canada); and

)

21

• a registered retirement savings plan as defined in section 146 of the

Income Tax Act (Canada).

2. There are several pension plans established by statute of the Government of

Saskatchewan for its own employees which are not subject to the Act, including:

• Public Service Superannuation Plan (which primarily covers employees of

departments and agencies hired prior to 1978);

• Public Employees Superannuation Plan (which covers employees of

departments and agencies, as well as employees of many Crown

Corporations such as SaskTel and SaskPower, hired after 1977);

• Teachers' Superannuation Plan (which covers teachers hired prior to

1980);

• Saskatchewan Telecommunications Superannuation Plan;

• SaskPower Superannuation Plan;

• Workmen's Compensation Board Superannuation Plan;

• Liquor Board Superannuation Plan;

• Members of the Legislative Assembly Superannuation Plan; and

• Judges of the Provincial Court Superannuation Plan.

22

However, it cannot be assumed that all Saskatchewan public sector plans are not

subject to The Pension Benefits Act, 1992. The Cities of Saskatoon and Regina,

the Universities of Saskatchewan and Regina, the Saskatchewan Association of

Health Organizations have registered pension plans. Also, the Capital Pension Plan

(which covers employees of several Crown Corporations including SGI), the

Municipal Employees' Superannuation Plan and the Saskatchewan Teachers'

Retirement Plan (which covers teachers hired after 1979) are registered pursuant to

the Act.

3. The federal government has legislation known as the Pension Benefits Standards

Act, 1985, which is substantially similar to The Pension Benefits Act, 1992. The

Pension Benefits Standards Act, 1985 regulates employer-sponsored pension plans

with respect to employment in connection with the operation of any work,

undertaking or business that is within the legislative authority of the parliament of

Canada. For example, the pension plans of firms or companies that are involved in

navigation and shipping, railways, canals, telegraph and other works which connect

one province to another, steamship lines, ferries between provinces, airlines, radio

broadcasting stations and banks are regulated by the Pension Benefits Standards

Act, 1985.

4. Pension plans for employees of the federal government, including the pension plans

for the Canadian Armed Forces and the R.C.M.P., are not regulated by the

province.

Taking into account all of the above, about one in three Saskatchewan plan members

comes from a plan not subject to The Pension Benefits Act, 1992.

To complete the discussion on jurisdiction, we should comment on pension plans which

are registered outside of Saskatchewan, but which have Saskatchewan members. Of

the over 1,400 plans in Canada with Saskatchewan members, only about 400 are

)

23

registered in the province.

The Federal Government and all provincial governments, except for Prince Edward

Island, currently are party to agreements which provide for a pension plan to be

registered in the jurisdiction in which the plurality of members are employed..

In simple terms, the agreements allow one regulator to act on behalf of another. The

functions, authorities and duties provided to a regulator by pension benefits legislation

may be delegated to another regulator. The parties to a pension plan - the

administrator, the employer and the plan beneficiaries - need only interact with one

pension authority. Documents are filed with only one pension authority.

However, the current agreements do not substitute the regulations of one jurisdiction

for another. Benefit entitlement concerns continue to be governed by the laws of the

jurisdiction in which the member is employed or by federal legislation, if the member is

employed in included employment. Therefore, a plan operating in more than one

jurisdiction will be subject to differing rules with respect to items such as vesting,

portability and survivor benefits. Under the current agreements, the regul.ator of the

jurisdiction of registration is expected to enforce all applicable laws, including those of

other jurisdictions where the plan has members in more than one jurisdiction.