1.      Is my pension a family asset?

Yes.  The British Columbia Family Relations Act (BCFRA) states that pensions are family assets.  As such, pension issues require resolution.

2.      How do I split my pension with my ex-spouse?

You have two choices:  PAIN LATER or PAIN NOW.

PAIN LATER means that your pension is split at source between you and your ex-spouse as per Part 6 of the BCFRA.

PAIN NOW means that you transfer assets now to your ex-spouse i.e., make a Compensation Payment, and you keep your pension intact.

3.      How does Part 6 of the B.C. Family Relations Act work?

You and your ex-spouse share the pension you accrued during the period of marriage pro-rated on pensionable service.  Pensionable service prior to the date of marriage and pensionable service after the Spouse Entitlement Date is excluded from the 50%-50% sharing.

An example to clarify the workings of Part 6 of the BCFRA:

Pension Formula: 1.0% x highest average earnings x pensionable service
Pensionable Service during marriage: 20 years
Total Pensionable Service: 35 years
Highest Average Earnings: $50,000
Without the marriage breakdown, your pension would be $17,500 per year (1% times $50,000 times 35).
Under Part 6:
a) your pension would be $12,500 per year (1% times $50,000 times [35 less 50% of 20]); and
b) your ex-spouse’s pension would be $5,000 per year (1% times $50,000 times 50% of 20).

To enter into Part 6 of the BCFRA, either you or your ex-spouse must complete the required forms and send them to the pension plan’s administrator.  When the plan administrator receives these forms and $500 (paid equally by you and your ex-spouse), your ex-spouse will become a Limited Member of the pension plan.

A Limited Member has two choices: a lump sum transfer to the Limited Member's Locked-In RRSP at any time after you are eligible for retirement but prior to your actual retirement, or a Separate Pension when you retire.  In either case, as per the example above, your pension will be reduced from $17,500 to $12,500 per year.

4.      How does a Compensation Payment work?

A Compensation Payment refers to an asset transfer from you to your ex-spouse.  Your separation / divorce agreement will then indicate that in exchange for the Compensation Payment, your ex-spouse has no further interest in your pension.

If your pension is a Money Purchase Plan then an Actuary is not required.  Your ex-spouse’s share of your pension is simply 50% of the balance of your account accumulated during your period of marriage plus interest to a current date.

An Actuary is required to help you determine the Compensation Payment if your pension is of the Defined Benefit Plan variety e.g., $40 per month per year of service, 2.0% of each year’s pensionable earnings or, 2.0% of highest 5-year average pensionable earnings times years of pensionable service.

The Actuary determines the pre-tax capitalized value of your ex-spouse’s share of your pension based upon the following factors:  your current age; your pensionable salary history; your pensionable service accrued during marriage; your state of health; your working percentage (full-time or % full-time); your retirement age(s); and the pension plan’s provisions – benefit formula, early retirement reductions, post-retirement indexation, etc.

The Actuary will also determine the post-tax capitalized value of your ex-spouse’s share of your pension using an average tax rate.

Typically, the Actuary provides a range of pre-tax capitalized values and a range of post-tax capitalized values.  The range in capitalized values is caused by your different potential future retirement ages, generally ages 55 to 65.

Because the Actuary is an independent resource, the ranges of capitalized values are independent of the person(s) who has(have) hired the Actuary.

You will not be surprised to find that within the ranges of present values, your ex-spouse will like the highest number while you will like the lowest number.  You and your ex-spouse will have to come to an agreement as to the proper present value.

An example of the workings of a Compensation Payment follows:

Suppose the family home has equity of $250,000 and, your ex-spouse’s post-tax share of the capitalized value of your pension is $50,000.

Without considering the pension, you and your ex-spouse are each entitled to $125,000 from the family home.  After the Compensation Payment, you are entitled to $75,000 ($125,000 minus $50,000) and your ex-spouse is entitled to $175,000 ($125,000 plus $50,000) in the equity of the home and, your ex-spouse has no further interest in your pension (this clause is to be written into your separation or divorce agreement).

Note that pre-tax capitalized values should be offset against pre-tax assets, e.g., RRSPs while post-tax capitalized values should be offset against post-tax assets, e.g., equity in the family home.

5.      What are the advantages / disadvantages of Part 6 of the BCFRA and a Compensation Payment?

The advantages of Part 6 of the BCFRA are:

Ø      No immediate asset transfer;

Ø      No actuarial fees; and

Ø      Pension splitting is done by the pension plan administrator.

The disadvantages of Part 6 of the BCFRA are:

Ø      $500 payment to the pension plan administrator;

Ø      Your ex-spouse may have to wait many years before accessing the share of your pension; and

Ø      Your pension is reduced (PAIN LATER).

The advantages of a Compensation Payment are:

Ø      Your pension is not split;

Ø      Your ex-spouse receives immediate access to the capitalized value of the share of your pension; and

Ø      All financial matters may be dealt with now.

The disadvantages of a Compensation Payment are:

Ø      Immediate asset transfer (PAIN NOW); and

Ø      Actuarial fees.

6.      When do I need actuarial services?

You need actuarial services when the following conditions are met:

Ø      You are a member of a Defined Benefit Plan;

Ø      You are considering making a Compensation Payment to your ex-spouse so that you may keep your pension intact; and

Ø      You have assets available to make a Compensation Payment.

7.      What types of actuarial services are available?

Westcoast Actuaries Inc. offers 2 types of services.

CONSULTING ADVICE

The first service is consulting advice by telephone. This advice provides the range in values of a potential Compensation Payment from a Defined Benefit Plan. Once the Actuary provides this value, the client can either:

a) opt into Part 6 of the BCFRA – if the plan member does not have sufficient assets to make a Compensation Payment; or
b) opt into Part 6 of the BCFRA – if the plan member does not wish to make a Compensation Payment; or
c) have the Actuary prepare an external report outlining the range of a potential Compensation Payment - if the plan member does wish to make a Compensation Payment;

Note: We recommend that Consulting Advice be delivered through a conference call with both parties and/or their respective lawyers.

EXTERNAL REPORT

The second service is an external report, which may be used for negotiation and court purposes.

An external report indicates the data used in our calculations, a summary of plan provisions relevant to the calculations, our actuarial assumptions, the results of our calculations and our actuarial opinion. The results section will show columns representing the different future ages of the member’s retirement from active service. Additionally, we show a column assuming that the member terminates employment as of the calculation date and receives an unreduced pension at the earliest age possible. Based on these columns, we indicate the range of pre-tax capitalized values and post-tax capitalized values of the non-member spouse’s share of the member’s pension. The range of capitalized values represents a potential Compensation Payment.

Note: The Actuary provides information which allows the member and ex-spouse to make an informed decision as to the amount of the Compensation Payment, if any.

CONSULTING ADVICE

For each pension plan evaluated, our minimum fee for consulting advice is $750.00 plus GST.

EXTERNAL REPORT

For each pension plan evaluated, our minimum fee for an external report is $1,500.00 plus GST.

If consulting advice has already been provided to a matrimonial lawyer on this case, our fees for an external report will be reduced by the cost of the consulting advice already paid.

Note: If Westcoast Actuaries Inc. is hired directly by a member or an ex-spouse, pre-payment of our fees is required. Pre-payment can be made by cheque or by MasterCard or by VISA (call 604-730-1898 extension 117 for details about credit card pre-payment).

Please complete this form (HTML version found here) and submit it to us.

A. Plan Member Information
1. Member Name
2. Member Gender •Male •Female
3. Member Date of Birth
4. Life Expectancy •Normal •Sub-Normal (explain)
5. Spouse Name
6. Spouse Gender •Male •Female
7. Spouse Date of Birth
8. Spouse Life Expectancy •Normal •Sub-Normal (explain)
9. Company Name
10. Member Status •Active •Terminated •Disabled •Retired
11. Work Schedule •Full-time •Part-time Percentage
12. Date of Termination / Retirement
13. If Retired, Pre-65 Annual Pension
14. If Retired, Post-65 Annual Pension
15. If Retired, Form of Pension Chosen

B. Marriage Information
1. Date of Marriage
2. Spouse Entitlement Date
3. Calculation Date (current date default)

C. Pension Plan Information
1. Name of Pension Plan
2. Plan Text/Summary included? Yes or No
3. Current Pension statement included? Yes or No
4. Member Profile included? Yes or No
5. Authorization included? Yes or No
6. External (Written) Report? Yes or No
7. Internal (Telephone) Report? Yes or No
8. Fees Enclosed? Yes or No

If the pension plan is not familiar to Westcoast Actuaries Inc., we will require an authorization form signed by the member. The form should read as follows: “I hereby authorize the plan administrator to reveal details of my pension plan participation to Westcoast Actuaries Inc.” The authorization form should be signed and dated by the member and include the member’s SIN and employee number (if available). The original should be sent to the pension plan administrator and a copy to us.

If the member belongs to one of the BC Public Sector Plans, we require a recent Member Profile. The Member Profile is available from the Pension Corporation at no cost to the member (1-800-663-8823 – general enquiry phone number).

10.  How do I hire Westcoast Actuaries Inc.?

Westcoast Actuaries Inc. can be hired by a matrimonial lawyer or directly by a plan member or the non-member spouse.  Westcoast Actuaries Inc. will request a retainer from the lawyer.

If Westcoast Actuaries Inc. is hired directly by a plan member or the non-member spouse then we require pre-payment of our fees. Pre-payment can be made by cheque or by MasterCard or by VISA (call 604-730-1898 extension 117 for details about credit card pre-payment).

11.  Can I do the actuarial report myself?

No!  You are not a well-trained, experienced Actuary.  Also, you have to consider whether your ex-spouse would find your results unbiased.

12.  Can I give my ex-spouse 50% of my required contributions plus interest?

Of course you can (if your ex-spouse agrees to this Compensation Payment).  Also, this amount may be appropriate if you are a member of a Money Purchase Plan.

However, 50% of your required contributions made during the period of marriage plus interest would likely represent the minimum capitalized value of your ex-spouse’s share of your pension in a Defined Benefit Plan.

13.  Glossary of Terms

Actuary means a fellow of the Canadian Institute of Actuaries who is qualified to evaluate pensions upon marriage breakdown (See Questions 4, 7 and 11).

Compensation Payment means an asset transfer from you to your ex-spouse.  In exchange, your ex-spouse agrees, in writing, to having no further interest in your pension.  Thus, your pension is not split with your ex-spouse (See Questions 2, 4, 5, 6, 7 and 12).

 Defined Benefit Plan means an arrangement whereby your pension is based upon a formula e.g., 1% times highest 5-year average earnings times pensionable service (See Questions 4, 6, 7 and 12).

 Limited Member means an ex-spouse who becomes a member of your pension plan as per Part 6 of the BCFRA (See Question 3).

 Locked-In RRSP means a Registered Retirement Savings Plan whose assets can only be used to provide a pension (See Question 3).

 Money Purchase Plan means an arrangement whereby your pension is based upon the accumulated contributions made by your employer and, perhaps, by you (See Questions 4 and 12).

 Part 6 of the BCFRA refers to a method of splitting your pension with your ex-spouse which does not involve a Compensation Payment (See Questions 2, 3, 5 and 7).

Separate Pension means a lifetime pension payable to a Limited Member (See Question 3).

Spouse Entitlement Date means when

Ø      a separation agreement,

Ø      a declaratory judgment under section 44,

Ø      an order for dissolution of marriage or judicial separation, or

Ø      an order declaring the marriage null and void

respecting the marriage is first made.  Effectively, this date is the end date of the marriage (See Questions 3 and 9).

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