A classic duel to the death benefit

An intriguing battle to claim a share in a benefit payable upon the death of a pension plan member is, hopefully, nearing its end.

Anne Stairs and Roger Mowbray were married in 1961. In 1965, Roger became a member of the Ontario Teachers’ Pension Plan and during his career accumulated nearly 30 years of credited service. The couple separated in 1988 and entered into a separation agreement in 1990.

One of the provisions in the separation agreement was to provide Stairs with a percentage share of a death benefit if one became payable from the plan, even if there was another surviving spouse. As it turned out, there was another surviving spouse, Catherine Mowbray, who entered into the equation when she married Roger in 1992.

Shortly after Roger’s death in 1995, Stairs wrote to the Ontario Teachers’ Pension Plan Board to inquire if she was entitled to any benefits. She was told the entire benefit was payable to the current spouse, Catherine. The benefit consisted of an indexed pension of more than $12,000 per year based on Roger’s pre-1987 pensionable service and a lump sum benefit of about $146,000 based on his post-1986 pensionable service.

In 1997, Stairs went to the Financial Services Commission of Ontario for assistance. Two years later the superintendent of financial services served notice that it intended to order the board to pay Stairs in accordance with the separation agreement. The board responded by requesting a hearing before the Ontario Financial Services Tribunal.

The tribunal ruled against Stairs. It examined section 48 of the Ontario Pension Benefits Act, which sets out the scheme and priority of entitlements for the payment of a pre-retirement death benefit. Section 48 provides that a pre-retirement death benefit is first an entitlement of a surviving spouse so long as that spouse and the member were not living separate and apart as at the date of death and so long as there was no spousal waiver. However, subsection 48(13) provides that an entitlement to a pre-retirement death benefit is subject to any right or interest set out in a domestic contract or court order arising from marriage breakdown.

The tribunal found that subsection 48(13) was not sufficient to bind a later surviving spouse, such as Catherine. It held the death benefit was not property and therefore Roger had no interest which he could convey.

The tribunal stated that subsection 48(13) “does not express the required clear and unequivocal legislative intention to take away or interfere with an entitlement to a pre-retirement death benefit that is payable to a person (an eligible spouse as at the date of death or designated beneficiary), where the domestic contract that would interfere with that entitlement is between the deceased pension plan member and another party, a former spouse.”

Stairs appealed the tribunal’s decision.

Seven years after the board refused to pay any benefit to Stairs, the Ontario Superior Court of Justice ruled in her favour. In a judgment dated June 18, 2002, the court once again examined section 48 of the Ontario Pension Benefits Act. The court ruled the tribunal was wrong when it said Roger had no proprietary or other interest in the benefit. The court found that, despite some limitations as to the timing of the payout, pensions are proprietary.

The court stated: “To require, as the tribunal did, that the domestic contract be one to which the spouse at the time of the death of the member consented, is unreasonable; it removes all meaning from the statutory scheme. In our view, the statute itself makes the contract binding on the person who is the spouse at the time of death, even though that person is not a party to the domestic contract.”

The court directed the superintendent of financial services to direct the board to make the payment to Stairs in accordance with the formula in the separation agreement. This has added another twist to the case since the parties recently went back to court to argue over the issue of how much Stairs is actually entitled to receive.

As with most court decisions, there are those who were pleased and others who were vehemently opposed to the outcome. Some plan administrators were very surprised at the tribunal’s decision. After all, they were accustomed to abiding by the terms of separation agreements. They likely welcome the court’s ruling, which supports the enforceability of separation agreements and provides some certainty. Others favour the interests of a current spouse over a former spouse, especially since the former spouse may no longer be in the picture. Regardless of which position one takes, it is difficult not to feel some sympathy towards Stairs’ plight. Even the tribunal recognized this in its decision.

Some general observations following the decision are as follows:

•The decision does not alter the response likely to be received when one asks plan administrators what they dislike most about administering a pension plan, namely, “any issue involving a marriage breakdown.”

•The splitting of pensions on marriage breakdown is very complicated and there are still many questions relating to their treatment for which there are no concrete answers.

•The Ontario Pension Benefits Act is woefully inadequate and outdated in addressing marriage breakdown situations. It has been seven years since the Ontario Law Reform Commission released a report entitled “Report on Pensions as Family Property: Valuation and Division,” and no changes have been made to the act to address the concerns raised in that report.

•Ontario has fallen behind other jurisdictions such as British Columbia, Alberta and Quebec, which have incorporated much more comprehensive marriage breakdown provisions in their respective statutes.

•Ontario needs to reconsider its approach which forces the non-member spouse to wait until the plan member terminates employment or retires before a settlement is affected. Most other provinces permit the spouse to affect an immediate transfer of pension entitlement.

Allen Minuskin is legal counsel for Buck Consultants Limited, a Mellon Financial Company. He can be reached at (416) 865-0060 or [email protected] For more information, see Stairs v. Ontario Teachers’ Pension Plan Board.

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