New guide explains how Ontario pension benefits are treated on marriage breakdown

The Financial Services Regulatory Authority of Ontario (FSRA) has released final guidance on the administration of provincial pension benefits upon marriage breakdown, along with an updated plain language guide to enable plan members and their spouses to better understand this topic.

The final guidance, which came into effect on Nov. 9, provides examples to assist plan administrators in interpreting and satisfying their legal obligations, offers interpretations of certain sections of Ontario’s Pension Benefits Act (PBA) and of Regulation 287/11 (Family Law Matters) under the PBA, and clarifies the FSRA’s stance on issues regarding valuation, payment, division and survivor benefits.

The guidance applies to administrators of pension plans subject to the PBA, which provides the process for valuing and paying the pension asset as equalization. The guidance is focused on the administration of court orders, family arbitration awards and domestic contracts made on or after Jan. 1, 2012, when significant legislative changes to the PBA and to the Family Law Act (FLA) took effect in Ontario, governing the valuation and division of pensions.

The former policies of the Financial Services Commission of Ontario relating to the processes for the valuation and division of pensions upon marriage breakdown have been consolidated and refreshed by the final guidance, which includes the approach guidance outlining the FSRA’s supervisory approach and expectations, and the interpretation guidance providing the FSRA’s view of statutory or regulatory requirements and explains what may lead to enforcement action.

The FSRA, as a principles-based and outcomes-focused regulator, has issued its guiding principles for the pension sector as being risk-based, reasonable, aware, adaptable, facilitative, effective, efficient and collaborative in its regulation of the pension sector.

The updated guide aims to give pension plan members and their spouses, plan administrators and other professionals an overview of valuing and dividing a member’s pension upon marriage breakdown. Certain sections are applicable to common law spouses.

Former married spouses normally keep the property they own, but share in any increase in their property’s value during the marriage, subject to debts, the guide explained. The value of a pension is an asset included when calculating net family property. Each spouse has his or her own net family property amount. The spouse with the lower amount is entitled to an equalization payment, which is half of the difference between the two amounts. The spouse with the higher amount can opt to use pension assets to make this equalization payment.

Former common law spouses, on the other hand, are not required to equalize their net family property under the FLA, but can choose to do so under a domestic contract or under a family arbitration award. Such spouses should seek legal advice if they are considering dividing their pension assets, said the guide.

The FSRA is committed to promoting the good administration of pension plans and to protecting the pension benefits and rights of pension plan beneficiaries, it said in its news release, and works to ensure financial safety, fairness and choice for its consumers and members.