working with the new fsco superintendent approved family law forms

Presented by Lynda Ellis and Scott Lamb

January 18, 2012

Introduction and Overview

Overview of PresentationPolicy Background and FSCO ApproachWho Must Use the FormsTransitionThe FormsThe ProcessFSCO Positions Next StepsQuestions

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Policy Background and FSCO Approach

Standardized valuation of pension assets

Common reporting

FSCO created Superintendent Approved Forms

FSCO created standardized forms in addition to those mandated: Plan Administrator Request for Information/Payment of Fee (Form 1A) & No Division of Family Law Value/Pension Assets (Form 7)

FSCO Forms include information in addition to that prescribed

FSCO Forms provide comprehensive “top to bottom” approach to processing pension valuation and division applications

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Policy Background and FSCO Approach

Forms have been posted on the FSCO website at www.fsco.gov.on.ca

“Imputed Value” defined in the Ontario Pension Benefits Act (PBA) is referred to as the “Family Law Value” in the forms (plain language approach)

In use January 1, 2012

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Who Must Use the Forms?

Spouses subject to the Ontario Family Law Act (FLA)

Pension is subject to the PBA (Ontario registered plans and multi-jurisdictional plans subject to the PBA)

Spouses and plan administrators must use FSCO forms (Form 1A and Form 7 are optional)

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Who Must Use the Forms?

What about other pension plans (Supplemental Employee Retirement Plans (SERPs), federal pension plans) that must be valued “where reasonably possible” with “necessary modifications” in accordance with section 67.2 of the PBA?

FSCO is not responsible for these types of plans

OSFI is responsible for federal plans (such as bank plans) subject to the Pension Benefits Standards Act, 1985 – OSFI and/or federal pension plan administrator must decide how section 67.2 will be applied

SERP plan administrator is responsible for administering the SERP - SERP plan administrator must decide how section 67.2 will be applied

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Transition

Who is subject to the new Family Law regime?

Set out at sections 67.5 and 67.6 of the PBA

Depends on the date the spouses’ Court Order, Family Arbitration Award or Domestic Contract (Settlement Instrument) is made

Settlement Instruments made before January 1, 2012 - old rules apply

Settlement Instruments made on or after January 1, 2012 - new rules apply

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Transition

Only new rules permit immediate payment of a spouse’s entitlement to a pension benefit or a deferred pension from a pension fund (“if and when” unless in pay)

Subsection 67.6(2) of PBA: Settlement Instruments made before January 1, 2012

that provide for the division of pension assets cannot be amended/varied after January 1, 2012 to change the way the pension assets are to be divided

Settlement Instruments made before January 1, 2012 that set aside pension assets and dealt with non-pension net family property only may be amended/varied after January 1, 2012 to divide pension assets pursuant to the new rules

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Transition Examples

Example #1

The parties separated in 2009. The pension benefit was valued by an independent actuary.

The parties have a separation agreement made in December of 2011 that deals with everything including division of the pension benefit.

The parties are subject to the old rules.

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Transition Examples

Example #2

The parties separated in 2009. The pension was valued by an independent actuary. The parties were unable to settle and a court date could not be obtained until after December 31, 2011.

The parties are subject to the new rules. They must apply for a Family Law Value from the plan administrator before the pension benefit can be divided pursuant to the court order (or another Settlement Instrument).

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Transition Examples

Example #3

The parties separated in 2010. Both spouses are pension plan members. In 2011 they entered into a separation agreement that dealt with all net family property except the pension benefit, which was deliberately excluded.

The parties may enter into/obtain a new Settlement Instrument and will be subject to the new rules.

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List of 12 Forms

12 FSCO Family Law Forms:

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Form 1 Application for Family Law Value

Form 1A (optional)Plan Administrator Request for Information/Payment of Fee

Form 2 Joint Declaration of Period of Spousal Relationship

Form 3 Contact Person Authorization

Forms 4A to 4E Statements of Family Law Value

Form 5 Application to Transfer the Family Law Value

Form 6 Application to Divide a Retired Member’s Pension

Form 7 (optional) No Division of Family Law Value/Pension Assets

The Process

Step One Member/Spouse Applies

Step Two Plan Administrator Responds

Step Three Parties Divide

Step Four Former Spouse Elects

Step Five Plan Administrator Pays

Step Six Pension Revalued

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Step One - The Application

Application for Family Law Value (Form 1)

Who may apply?The plan member or the married spouse/formerly married spouse of the plan member may apply Non-member common law spouses may not apply

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The Application

Application for Family Law Value (Form 1)

Completing the Form: LinkProvide information about the applicant, the pension plan (name, administrator, etc.), the plan member and the spouse/former spouse Contact Person Authorization (Form 3) (lawyer, ESL, etc.) LinkInformation about the beginning (starting date) and the end (FLVD) of the relationship:

Joint Declaration (Form 2) Link Appendix A (Form 1) calculation at two dates

Documents (birth/marriage/FLVD) and Fee Declaration of Applicant re: correctness (witnessed)

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The Application

Plan administrator is not required to calculate the Family Law Value without the required supporting documents or the applicable fee, if any

Application complete – Plan Administrator has 60 days to provide the Family Law Value

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Application Fee

Plan administrator may charge a fee

Each plan administrator must decide to charge or not to charge (as a part of the standard of care plan administrator should document support for the position taken)

Maximum fees:

$200 for Defined Contribution Benefit (DC) valuation

$600 for Defined Benefit (DB) valuation $800 for Combination Benefit and Hybrid

Benefit valuations

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Step 2 - Plan Administrator Responds

Complete FSCO Family Law Form 1A if The Application is incomplete The fee is not attached Link

Once complete application is received Select applicable Statement of Family Law

Value (Form 4) Link Type of plan: DB, DC, Combination (DB + DC),

Hybrid (greater of DB or DC) Status of plan member: active, retired, former

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All Statements of Family Law Value (Form 4s)

Part A Family Law Value – Summary Part B Pension Plan Information Part C Plan Member Information Part D Spouse/Former Spouse Information Part E Options for Spouse/Former Spouse Part F/G Certification by Administrator Next Steps Appendices

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Family Law Value – Summary

Summary of: Starting date Separation date (Family Law Valuation Date) Family Law Value The maximum that can be transferred or paid

(in $ and as a % if applicable)

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Appendices such as: Plan Provisions Actuarial Assumptions (if applicable) Worksheet for the Calculation of the Family Law

Value

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Preliminary Value is the value unadjusted for the period of the spousal relationship

Family Law Value (Imputed Value) is the preliminary value adjusted for the period of the spousal relationship

Starting Date - date the relationship started

Separation Date (Family Law Valuation Date) - date the relationship ended

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Additional Voluntary Contributions (AVCs)/Excess Member Contributions

Not included in the Family Law Value No maximum amount that can be distributed Distribution of AVCs subject to plan terms Excess member contributions not determined

for an active member (not included on Forms 4A, 4B, 4C)

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Surplus added to Preliminary Value if:

Amount known at FLVD Plan member entitled to receive a share

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Not Vested Preliminary value is reduced 50%

Full or Partial Wind Up Preliminary value is the wind up value if:

Plan wound up (fully or partially) The plan member is included in wind up group Effective date of wind up is on or before the

Family Law Valuation Date The declaration of the wind up is on or before

the date Form 4 is issued

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Plan Amendments

Will apply mainly to DB plans Plan member belongs to a class that received

or will be receiving a cost of living adjustment (COLA)

Adjustment occurred within the 3 years before the Family Law Valuation Date

Must be disclosed Only value of COLA actually granted included

in preliminary value Future ad hoc COLA not included in preliminary

value

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FSCO Family Law Form 4A

All Plan Members with a Defined Contribution Benefit (on FLVD)

Preliminary Value is either: Link The value of the plan member’s account (if the

account balance is known at Family Law Valuation Date); or

The value of the plan member’s account at the last day of the month immediately preceding the Family Law Valuation Date if not determinable at the Family Law Valuation Date

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Family Law Value: If the starting date of the spousal relationship is before the

date when plan member joined the plan: The preliminary value = Family Law Value

If the starting date of the spousal relationship is on or after the date when plan member joined the plan:

The preliminary value at Family Law Valuation Date (FLVD) minus the account balance;

The preliminary value at FLVD minus account balance that can be determined between 45 days before/after the starting date; or

The preliminary value is multiplied by the years of membership (service) while the two were spouses divided by the total number of years of membership (service)

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Maximum Amount that may be transferred or assigned to the spouse/former spouse 50% of the Family Law Value accrued during the

period they were spouses

Options Transfer to LIRA, LIF or another RPP Transfer to RRSP, RRIF or cash - small amounts;

non vested; shortened life expectancy; surplus

Interest Credited from Family Law Valuation Date to first

of the month of payment Fund rate

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FSCO Family Law Form 4B

Active Plan Member with a Defined Benefit (on FLVD) Link

Preliminary Value Determined as of FLVD using CIA Standards of

Practice section 3500 Calculation depends on whether the FLVD is on

or before/after the early unreduced retirement date

Weighted calculation Takes into account future entitlements to

bridge or early unreduced benefits (not future salary increases)

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Family Law Value Preliminary value multiplied by the period of

the spousal relationship divided by the period of service/membership under the plan

Maximum Value transferable to spouse/former spouse 50% of Family Law Value

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Options Transfer to LIRA, LIF or another RPP Transfer to RRSP, RRIF or cash payment - small

amounts; non vested; shortened life expectancy; surplus

Interest Credited from FLVD to first of the month of

payment Interest rate used in calculating the preliminary

value

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FSCO Family Law Form 4C

Active Plan Member with a Combination Benefit (DB + DC) on FLVD Link

Calculate the Family Law Value separately for DB and DC

Add the two Family Law Values together

Interest determined separately for DB and DC

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FSCO Family Law Form 4D

Former Plan Member with a Defined Benefit or Combination Benefit (on FLVD) Link

Must have terminated and be entitled to a deferred pension

Preliminary Value is the value of the deferred pension

Family Law Value is the preliminary value multiplied by the period of the spousal relationship divided by the period of service/membership under the plan

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FSCO Family Law Form 4E

Retired Member with a Defined Benefit Pension (on FLVD) Link

Family Law Value – Summary Includes Family Law Value

of retired member’s benefit of former spouse’s survivor benefit

Pension Summary Lifetime pension Bridging/supplemental benefit Maximum lifetime pension payable Maximum bridging/supplemental benefit payable

Other Summary Information Indexation Post-retirement death benefit

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FSCO Family Law Form 4E

Former Spouse’s Options

Division of pension in pay Combination Option - Combine the former spouse’s

share of the Family Law Value and the value of the survivor benefit and receive a monthly pension

Only available if plan permits Only available if a joint and survivor pension

provided at retirement Pension payable for the lifetime of the former

spouse Transfer to RRSP, RRIF or cash – shortened life

expectancy; surplus

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Step 3 – Parties Decide/Required to Divide

The spouses/former spouses obtain a Settlement Instrument (court order, family arbitration award or domestic contract) dealing with pension assets

Division of Family Law Value go to Step 4

No Division of Family Law Value/Pension Assets (Form 7) (optional) Link Optional Form Joint Confirmation File with plan administrator Does not affect support orders

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Step 4 - Former Spouse Elects

Was the first pension payment due on or before the FLVD?

No - Application to Transfer the Family Law Value (Form 5) Link Transfer former spouse’s share to:

LIRA, LIF or RPP RRSP, RRIF or cash (non-locked in amounts)

Yes - Application to Divide a Retired Member’s Pension (Form 6) Link Pay former spouse’s share of pension, including

combination pension if available and elected by former spouse

Transfer former spouse’s share to RRSP, RRIF or cash (non-locked-in amounts)

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Step 5 – The Plan Administrator Pays

Within 60 days of receiving a completed application form (Form 5 or 6)

Payment in accordance with former spouse’s election Transfer Division of pension - address retroactive

payments, if any, incorporated into pension stream

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Step 6 - Pension Revalued

Following the division of the Family Law Value pension is adjusted/revalued by the plan administrator

Revaluation following lump sum transfer DC – pension benefit revalued following transfer by

deducting transfer amount DB (Deferred Vested) – deferred pension revalued

on transfer in accordance with prescribed formula DB (Active) – pension benefit revalued on

termination of employment/membership in accordance with prescribed formula

Combination – apply both DC and DB Hybrid – FSCO is developing policy

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Step 6 – Pension Revalued

Revaluation following division of pension Pension is revalued by subtracting former

spouse’s share of pension at time of division

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FSCO Positions

Hybrid Benefit Valuation/Revaluation Hybrid = greater of DB or DC benefit Determine the greater benefit at the Family

Law Valuation Date (FLVD) Determine as if the member had terminated

employment/membership on the FLVD Family Law Value is whichever is greater - use

Form 4A or 4B FSCO is drafting a policy for plans with hybrid

benefits which will include guidance on how to revalue both DB and DC components

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FSCO Positions

Buybacks and Transfers

Buybacks – purchase (cash/RRSP/LIRA) of credited service relating to a leave of absence or pre-membership period in accordance with the terms of the plan

Transfers – transfer of funds into a pension plan in connection with a sale, assignment or divestment (PBA section 80) or the adoption of a new pension plan (PBA section 81)

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FSCO Positions

Buybacks and TransfersBuybacks

key consideration is the purchase date if the purchase date is within the spousal period the

credited service should be included in the Family Law Value

Transfers date of transfer is irrelevant service will be deemed to be continuous, the

transfer can be ignored and the accrual period will remain the key consideration

only credited service accrued during the spousal period will form part of the Family Law Value

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FSCO Positions

Small Amounts

Former spouse’s entitlement to commute a small amount based on value of former spouse’s share of Family Law Value

Not based on total Family Law Value (i.e. pre-division value)

Based on YMPE as of the Family Law Valuation Date Not available for former spouse of retired member

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FSCO Positions

Shortened Life Expectancy

An application has been made to the plan administrator

The application has been approved The Family Law Value is based on the

shortened life expectancy calculation value The options available to the spouse/former

spouse – transfer to RRSP, RRIF or cash (unlocked for both)

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FSCO Positions

Death of Member/Former Member after FLVD Transfer of former spouse’s share of pension benefit

or deferred pension to former spouse

Death of Retired Member after FLVD Retired member’s pension including payment of

former spouse’s share will end (subject to any guarantee period)

Spousal survivor pension will be paid unless waived Combination pension (if applicable) will be paid for

life of former spouse (subject to any guarantee period) [PBA 67.4(10)]

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FSCO Positions

Death of Former Spouse after FLVD

Former spouse of Member/Former Member - Transfer of former spouse’s share of pension benefit/deferred pension made to estate of former spouse [PBA 67.3(5)]

Former spouse of Retired Member - Former spouse’s share of pension will cease unless Settlement Instrument requires payment to continue to former spouse’s estate

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Next Steps

FSCO: Developing a Hybrid policy Continuing to respond to inquiries and post

Q&As Considering whether additional forms are

necessary Intends to review the forms and the process at

the end of 2012 Will review and update the forms and the

valuation and division process based on any future legislative changes

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working with the new fsco superintendent approved family law forms

Documents

federal pension plans

deferred pension

pension fund

division of pension

pension assets pursuant

processing pension valuation

fsco forms form

pension benefits standards