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Court clarifies valuation of federal pensions for marital breakdowns in Ontario

In a recent case, the Ontario Court of Appeal provided guidance on how federally regulated pensions are to be valued in marital breakdown settlements in Ontario. Van Delst v. Hronowsky1 (Hronowsky) discusses the interpretation of the term “normal retirement date”, as well as the valuation of survivor benefits.

After 20 years of marriage, Ms. Van Delst and Mr. Hronowsky separated in September 2016. Both parties were members of the federal Public Service Superannuation Act (PSSA). Mr. Hronowsky had retired in December 2016, while Ms. Van Delst was still an active member. The appeal concerned a number of decisions made by the trial judge with respect to the valuation of their respective pensions. The Court of Appeal was required to interpret subsection 10.1(2) of the Family Law Act (FLA), which requires that the Ontario method of valuation should be applied where reasonably possible for valuing pensions that are not provincially regulated, with “necessary modifications”.2

Survivor and contingent survivor benefits

The Court of Appeal found that the value of Ms. Van Delst’s survivor benefits from Mr. Hronowsky’s pension should be excluded. This is because she would lose the right to such benefits under the PSSA upon completion of the divorce. The Court of Appeal also found that the value of contingent survivor benefits should be included in the calculation of the commuted value of the pension, as per actuarial practice and regulatory guidance in Ontario. A contingent survivor benefit is the potential future survivor benefit payable to a pension member’s future spouse (if any). This is because the pension values should be calculated the same way they would be treated if they were Ontario pensions, unless there are compelling reasons not to.

With respect to the contingent survivor benefits, the Court of Appeal noted that the ability to confer a survivor benefit on a future partner is of value to a pension member even if the member does not receive these funds personally, and that the usual provincial approach could be applied to federal pensions.

Normal retirement date

The PSSA does not specify a normal retirement date for members. The trial judge had made her own estimates of the date that the parties were expected to retire. However, the Court of Appeal found that the functional equivalent of the normal retirement date is the date that any member of the plan can retire with an unreduced pension. For both the husband and the wife, the PSSA provided for an unreduced pension at age 60 for any contributor with two years of pensionable service. As such, the Ontario valuation methodology should have been modified to use age 60 as the normal retirement date.

The Court of Appeal offered some general principles to be followed in the valuation of non-Ontario pensions under the Ontario family law regime. It noted that the legislature had intended to create certainty and avoid costly litigation when it adopted the new family law regime. In reaching its findings, the Court of Appeal shed light on the correct approach to pension valuation issues for non-Ontario regulated pensions:

  1. The parties should request that the pension administrator generate a value based on Ontario law. In doing so, the scheme of the Ontario Pension Benefits Act (PBA) should be followed as closely as possible. The Court of Appeal noted that the legislative intent under s. 10.1(2) of the FLA is clear that a non-Ontario pension be valued, where reasonably possible, in the same manner as an Ontario regulated pension unless there are compelling reasons not to. This means that the valuation formula in the PBA regulation should be applied to a non-Ontario pension, with modifications only where necessary.
  2. Where the parties to family law litigation do not find it possible to settle on a method, for example if the plan administrator refuses to calculate the value or the parties cannot agree to the proper modifications to be made, the parties may refer such issues to the court for direction. If court direction is sought, a jointly appointed expert on valuation is encouraged, rather than using competing pension experts.

Comments

By explaining the application of the FLA in the context of Ontario pension division, Hronowsky provides valuable guidance to both pension plan administrators and family law litigants in the valuation and division of pensions that are not regulated by Ontario pension legislation. These types of pension plans can include federally regulated pension plans, public service pension plans, and supplemental pension plans.


1  Van Delst v. Hronowsky, 2020 ONCA 329.
2  The parties chose not to proceed under the federal Pension Benefits Division Act, which otherwise would have applied to a pension under the PSSA.


News & Views - December 2020 (PDF)