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Talk to plan admins about pension beneficiaries

Posted by on Dec 15, 2012 in Retirement, Smallbizadvisor | 0 comments

BY Sheryl Smolkin, lawyer and journalist | December 14, 2012

How many Ontario residents are separated (but not divorced) and have common law spouses and have pension plans or retirement savings vehicles? You probably have a few clients in that scenario or at least your small biz owners do.

The recent Ontario Court of Appeal ruling about in the Carrigan case will have serious implications for these individuals, their common law spouses and their beneficiaries.

Read about the case here. And for further details, see: Carrigan v. Carrigan Estate, 2012 ONCA 736

What do advisors need to do?

First, talk to your clients’ plan administrators. It will become important for plan administrators to not only ask for the names of spouses but to clarify whether they are legally married or common law spouses.

Administrators will also have to inform members that in order for their common law spouse to receive the pre-retirement death benefit, there must be a clear beneficiary designation. It may also be prudent to encourage members to name a subsequent beneficiary who will get the benefit if the common law spouse dies first or the relationship ends.

Next, review current pension plan texts. Employers sponsoring pension plans will have to review and possibly revise pension plan texts and any other collateral material such as employee booklets and beneficiary designation forms to reflect the new reality. If the documentation suggests that a common law spouse has priority but the Court of Appeal’s legislative interpretation stands, the plan sponsor could be caught in the middle of a battle between two “spouses.”

“The twist is that we don’t know how administrators are going to react. Some may say the law changed October 31st and that’s how we are going to administer the plan now,” says Osler partner Doug Rienzo. “Others will take a wait and see approach or even hold back funds so they don’t run the risk of having to pay twice.”

Rienzo also says that there is a good chance that there will be multiple applications to intervene before the Supreme Court of Canada from groups such as the Association of Canadian Pension Management and the big public sector plans. “The reaction I have heard to this case crosses traditional boundaries. I haven’t heard anyone say this is the correct result,” he says.

The Ontario Court of Appeal has granted a stay of this controversial judgment pending the outcome of an application for leave to appeal to the Supreme Court of Canada. Until the SCC decides whether it will hear the appeal or the disposition of the appeal, pension plan administrators must be mindful of how they deal with the payment of death benefits following the death of plan members, especially in circumstances involving more than one spouse.

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