Calculation of residual benefits
Newsletter number 32,
Amendments to the Regulation respecting supplemental pension plans effective 4 January 2018, as well as
division V – Transfer of benefits between spouses of the
Regulation respecting supplemental pension plans, to find out the rules for partition applicable to spouses in a civil union, the changes to the payment methods applicable to the former spouse, and the calculation of member benefits after partition.
The plan may provide a more advantageous method for the member
With respect to valuation of benefits, the administrator has no discretionary power. Any value other than that determined in the manner provided for in the Regulation respecting supplemental pension plans will necessarily be prejudicial to one or the other of the spouses.
However, in determining the residual benefits, if the plan does not reduce the member's benefits to the extent provided for in this regulation, the former spouse's benefits will not be affected. The additional advantage to the member is assumed by the pension fund.
The calculation method for residual benefits depends on the type of the benefits from which the amount transferred to the former spouse is taken
If the member's benefits as at the date of institution of the action includes both locked-in and not locked-in benefits, the sums transferred to the former spouse must be locked-in and not locked-in
in the same proportions. The member's benefits will be reduced similarly.
However, if the member's benefits include both capital benefits and
pension benefits, each of them does not have to be reduced proportionally. The administrator can exercise discretion in this area.
The method to use depends on the benefits type at the time partition is carried out and not at the valuation date.
The member's account is simply debited for the sum transferred to the former spouse.
Regulation respecting supplemental pension plans does not specify whether such sums must be debited first from the member contributions or the employer contributions or both contributions at the same time. The administrator may therefore exercise discretion in this regard.
Pension benefits, pension not in payment, negative pension (examples)
The sum transferred to the former spouse is converted into a negative pension amount, using the assumptions in effect at the valuation date. That amount is noted and will serve to calculate the retirement pension.
- for former married spouses: the date of institution of the action, unless the judgment orders that the former spouses' property is valued at the end of the conjugal relationship
- for former de facto (common law) spouses: the date of the end of the end of the conjugal relationship.
The negative pension does not represent a portion of the deferred pension or the excess member contributions transferred to the former spouse. There is no relationship between the negative pension and the calculation method for the deferred pension for the purposes of partition. Therefore, one must ignore, for example, the rule under which only half the value of the early pension benefit is included in the deferred pension.
The negative pension is simply the representation of the amount transferred to the former spouse (in capital and interest) in the form of the pension amount payable upon retirement. It must therefore be calculated on the basis of the member's normal pension.
The negative pension is fixed even if the member's deferred pension is indexed.
If the member retires at the normal retirement age under the plan, the amount of his or her pension is first calculated without taking partition into account and then is reduced by the amount of the negative pension.
If the pension is an early pension, the negative pension must be reduced on the basis of actuarial equivalence, even if the early pension is not reduced on that basis.
A sum of 4 000 $ is transferred to the former spouse, which corresponds to a pension of 1 000 $ a year, payable as of age 65.
The member retires at age 65. His or her pension is then calculated, without taking partition into account, to be 2% × 30 years of service x a salary of 30 000 $ = 18 000 $ a year.
The member will receive 18 000 $ - 1 000 $ = 17 000 $
The normal retirement age under the plan is 65, but the member is entitled to an unreduced early pension at age 60.
Upon retirement at age 60, the member is entitled to a normal pension (at age 65) of 18 000 $, without taking a negative pension of 1 000 $ into account. Since he or she is entitled to an unreduced early pension, he or she will receive:
18 000 $ - (actuarial equivalent of 1 000 $)
18 000 $ - 682 $ = 17 318 $
Pension benefits, pension in payment
The pension must be reduced in proportion to the sum transferred by the value of the pension as at the date of partition.
In the case of partition of a joint and survivor pension whose amount was reduced at retirement to take survivorship in to account and which must be reinstated following the application for partition, the proportional reduction is applied to the amount of the reinstated pension.
See more information on this point.
The value of the member's pension must in this case be determined as a function of the following 2 rules:
- The value must be calculated by using the actuarial assumptions in effect as at the date of the valuation that applies to the spouses:
- married spouses: institution of the action, unless the judgement provides that the effects of the marriage are determined as at the end of the conjugal relationship
- de facto spouses: end of the conjugal
- If the pension was a joint and survivor pension as at the valuation date, its value must be calculated by supposing that the pension is still a joint and survivor pension, even if it is not by reason of the application of section 89 of the Supplemental Pension Plans Act.
The member was entitled to a pension of 20 000 $ upon retirement. However, since his or her spouse had not renounced entitlement to a joint and survivor pension, he instead would receive a pension of 18 000 $ that would become a surviving spouse's pension in the event of the member's death.
As at the date of institution of the action, the pension's value was 200 000 $.
The judgment gives the former spouse entitlement to half that value, that is, 100 000 $.
Taking the accrued interest into account, 125 000 $ have been transferred to the former spouse.
As at the date of partition, the member's pension, calculated using the assumptions in effect as at the date of institution of the action and supposing that the pension is still a joint and survivor pension, is determined to be 180 000 $.
The member's residual pension is calculated in the following manner:
Amount of the reinstated pension - (amount of the reinstated pension × amount transferred to the former spouse in capital + interest / value of the member's pension at partition) = residual pension
Thus, 20 000 $ - (20 000 $ × 125 000 $ / 180 000 $) = 6 111 $
For more information