A look at 3 cases involving spousal entitlements and the implications for pension plan sponsors
For pension plan sponsors, navigating an employee’s relationship status is a potentially costly reality. Often, the plan sponsor is also the plan administrator so it stands in a fiduciary position to plan members. That means it must ensure payments from the pension fund are made only if there are entitlements to benefits under applicable legislation and the terms of the plan.
One area of benefit entitlement that poses a particular challenge for plan administrators is the benefit entitlements of spouses and former spouses. This area of pension law has become increasingly complex as relationship breakdowns, cohabitation and remarriages are more common, and the definition of spouse has broadened.
Often, more than one person claims to be a member’s spouse or former spouse who may be entitled to a benefit under the plan, and the plan administrator may be party to litigation involving claimants with respect to the pension benefits.
Issues related to changes in relationship status and the corresponding impact on benefit entitlements will be an ongoing issue for plan administrators. Below are a few recent cases that illustrate the significance of relationship status as it relates to benefit entitlements.
More than 1 spouse involved
The Supreme Court of Canada recently dismissed an appeal from the 2012 decision of the Ontario Court of Appeal in Carrigan v. Carrigan Estate. In this case, plan member Ronald Carrigan and his wife, Melodee Carrigan, separated — probably in 1996 — and executed a separation agreement. But they never divorced.
Ronald subsequently cohabited with his common-law spouse, Jennifer Quinn, from 2000 until his death in 2008. Following his death, both his wife and Quinn claimed an entitlement to his pre-retirement death benefits as a spouse.
The court of appeal found both women qualified as spouses under the Ontario Pension Benefits Standards Act (PBA). The court then considered the provisions of the PBA that gave priority to a spouse over a designated beneficiary with respect to a member’s pre-retirement death benefits. The provisions provide that where a member dies with a spouse by marriage or through a common-law relationship, his pre-retirement death benefits are payable to the spouse. There is also an exclusion provision that states spousal priority does not apply if the member is living separate and apart on the date of the member’s death.
According to the Ontario Court of Appeal, it was sufficient that both Carrigans were living separate and apart when he died, rendering the spousal priority provisions inapplicable to both spouses. This also disqualified Quinn from entitlement to pre-retirement death benefits as Carrigan’s common-law spouse. Ultimately, the benefits were paid to Carrigan’s designated beneficiaries.
This interpretation of the PBA was surprising to some as it was inconsistent with how the provisions had previously been administered. They were previously understood to create a priority where the member had both a spouse by marriage and a common-law spouse.
As a result, Ontario members in similar arrangements who want their common-law spouse to be the beneficiary of any pre-retirement death benefits will now need to designate the common-law spouse as such. It is not yet clear whether the decision will have similar implications for a common-law spouse’s entitlements to a joint and survivor pension.
Inadequate separation agreement
In the 2010 case King v. King, Robert King was married to his first wife, Marlene King (now Raines), when he retired and commenced receiving a joint and survivor pension from the Ontario Municipal Employees Retirement System (OMERS). Shortly after his retirement, the couple separated and they executed a separation agreement with a release providing that Robert King was “entitled to sole use, ownership and benefit of… all pension plans registered in his name,” including his OMERS pension plan.
King subsequently remarried and sought to name his second wife as the beneficiary of his joint and survivor pension, in place of Raines. OMERS refused to accept the separation agreement as sufficient for the purposes of Raines waiving her entitlement to survivor benefits as King’s spouse at the time he retired. Instead, the plan administrator required King to file a joint and survivor pension waiver form signed by Raines — but she refused to sign it.
At trial, King sought a declaration that Raines had waived her entitlement to his OMERS survivor’s pension. But the separation agreement did not remotely satisfy the prescribed waiver form required by the Ontario PBA, found the Ontario Superior Court of Justice. Raines had not, therefore, waived her entitlement to a survivor’s pension. And because the legislative requirement that a valid waiver be in the prescribed form was mandatory, the prescribed form had to be used, said the court.
King demonstrates that plan administrators should be careful to only accept a spousal waiver that is in the form prescribed by the legislation. Accepting and acting on a deficient waiver could adversely affect a former spouse’s entitlement to a survivor’s benefit, in favour of a current spouse. Doing so could expose the plan administrator to liability for pension benefits paid to an individual in the absence of any legal entitlement.
Former spouse seeks benefits
In the 2012 case Vladescu v. CTV Globe Media Inc., CTV pension plan member Gabriel Filotti executed a separation agreement with his former spouse, Florina Vladescu, that was subsequently incorporated into a divorce order. The agreement provided that Vladescu would receive his survivor benefits and had a schedule directing that all survivor benefits be paid to Vladescu. The separation agreement further provided that Filotti would make all possible efforts to ensure any future spouse released all rights or claims to his pension.
By the time Filotti died, he had remarried and CTV felt his new wife was entitled to his pre-retirement death benefit. Vladescu brought an action against CTV, as the plan administrator, for payment of the pre-retirement death benefit. She took the position that the terms of the separation agreement constituted an assignment pursuant to the federal Pension Benefits Standards Act.
The Ontario Superior Court of Justice did not agree. It found the fact that the separation agreement contemplated a subsequent spouse was inconsistent with the nature of an assignment. An assignment is the irrevocable transfer of an interest, said the court, and assignment language must be clear and unambiguous.
The language in the separation agreement, however, contemplated the assignment might not be possible in the event of a future marriage, as the new spouse would have an entitlement to the benefits in question. In this case, the separation agreement was more akin to a beneficiary designation and the current spouse’s entitlement took priority over Vladescu’s entitlement as a designated beneficiary.
Vladescu again reminds plan administrators to carefully review documents that may have the effect of altering, or extinguishing, the entitlement of any spouse or former spouse. With respect to separation agreements that purport to assign a pension right to a former spouse, the plan administrator will want to ensure the language is clear and unambiguous, particularly where the assignment of pension benefits impacts the rights of a future spouse.
Plan administrators are frequently required to review and interpret separation agreements and waivers. Their decisions have an impact on benefit entitlements and the resulting payments from the pension fund. These documents have potentially significant legal and financial implications for administrators as fiduciaries.
The plan administrator is not authorized to act as an adjudicator of these matters. If a separation agreement is unclear or otherwise legally problematic, it should be sent back to the member’s counsel for clarification. In some cases, it may be expedient for the administrator to pay the funds into court while the parties sort the matter out.
Allyson Marta is a senior associate at Mercer in Toronto. She can be reached at email@example.com.