Waiving survivor benefits

Almost all pensions provide for joint and survivor benefits. This means when a pensioner dies, his or her spouse can continue to receive benefits.

The decision in the 2010 Ontario case King v. King shows the consequences of failing to properly deal with survivor benefits. In the majority of cases, there will be no issue over a surviving spouse’s entitlement to survivor benefits, provided he or she has not deliberately or improperly opted out of their receipt. Issues involving survivor benefits typically arise when the wrong form has been used and/or following the separation or divorce of a plan member after the pension commenced payments.

The issue in King was whether a general release of pension rights in a separation agreement was sufficient to waive the spouse’s entitlement to the plan member’s survivor pension.

When the spouses separated, the plan member’s pension was already making payments. The spouses signed a separation agreement containing a general release with respect to the husband’s OMERS pension plan, and a provision that each of the parties would execute documents required to give effect to the terms and intent of the agreement.

The plan member remarried and wrote OMERS to appoint his new wife as his beneficiary. OMERS replied the separation agreement did not show that the former spouse had relinquished her entitlement to the survivor benefits. She was also the eligible spouse when the pension first started issuing payments.

If the former spouse were to complete the prescribed form, it would be accepted as evidence she had relinquished her right to survivor benefits. She refused to do so and the matter proceeded to court. The plan member said he had never named his former spouse as beneficiary.

Provincial legislation disagrees

The Ontario Pension Benefits Act provides for a mandatory joint and survivor pension when the former member has a spouse on the date payment of the first instalment of the pension is due.

Accordingly, it was not necessary for the plan member to specifically designate his then-spouse as beneficiary — the entitlement was automatic by virtue of the spouse’s status at the time.

However, the Act allowed the spouse entitled to survivor benefits to waive this mandatory provision by delivering a written waiver in the form required by the Financial Services Commission of Ontario’s superintendent.

Previous case law supported the conclusion the Ontario legislature mandated the use of the approved form to ensure the exception could only be obtained if the spouse explicitly waived her benefits.

In the King case, the court found the first instalment within the meaning of the Act occurred when the plan member retired. The court also found the plan member’s former spouse was his eligible spouse at the time of his retiring.

Therefore, the plan member’s pension became a “joint and survivor pension” within the meaning of the Act. The court found the release in the separation agreement did not mirror the prescribed form in any respect. Since the plan member had not strictly complied with the statute, he was unable to designate his new spouse as recipient of the survivor benefits upon his death.

Strict compliance necessary

It was not suggested that a doctrine of strict compliance could have been applied, even if the release had mirrored the prescribed form. It was understandable the plan member would believe his former spouse had given up her interest in the survivor pension. This, however, did not eliminate the need to comply with the requirement to deliver a waiver in the prescribed form.

Court decisions involving pension benefits have often strictly complied with applicable legislation. The use of prescribed forms is necessary, particularly as regards the waiving or relinquishing of rights. This differs from the law governing the devolution of other kinds of property by beneficiary designation, such as insurance.

With insurance, the case law indicates that no particular form of beneficiary designation is required. Some persons simply type or handwrite their own beneficiary designation or beneficiary change form, and forward it to the financial institution administering the asset. Provided it specifically identifies the insurance plan and the person or persons to receive it, and is signed or completed in some manner by the donor, such a designation should be sufficient.

This inconsistency may cause confusion. However, a survivor’s pension is not an asset whose devolution the plan member can control. Rather, it is a right of the plan member’s spouse.

In King v. King, the plan administrator did not participate in the court application. Rather, OMERS indicated it would abide by the outcome, provided no costs were awarded against it. But in many instances a plan administrator will have an interest in ensuring not only that the prescribed forms are used, but also that there are no precedents set to the contrary. On that basis, there are analogous cases where the plan administrator has participated to protect the integrity of the pension plan.

It is also important to remember litigation may end not with a judicial decision, but with compromise. If the former spouse and new spouse in the King case had agreed to divide the survivor benefits payable in the future, the plan administrator would have had to approve the proposed arrangement, if it were allowable.

Given that the applicable legislation speaks to the “eligible spouse” at the time the pension commences to be paid, and not to “spouses” at different points in time, a proposed sharing of survivor benefits would give rise to a variety of issues.

When a pension commences, actuarial calculations are conducted with reference to the plan member and his eligible spouse at the time. This impacts the value of the survivor’s benefits and, accordingly, the funding of the joint and survivor pension.

A court decision or a compromise at a later date that makes a new spouse eligible for survivor benefits can be at odds with these calculations. They can impact the management of the plan and the interests of other plan members.

Advisors must ensure the correct and prescribed forms are used, and that separation agreements contain valid and comprehensive releases of pension rights. Consider incorporating by reference and attaching the executed forms as schedules to the agreement. Alternatively, if there will be additional documents to be signed later, such a provision should be specific enough to ensure it is enforceable or there are meaningful consequences for the party that declines to adhere to the provision’s intent.

Daniel Dochylo, T.E.P., C.S. is a Partner at Borden Ladner Gervais LLP and the National Chair of the Estate and Family Litigation Practice Group.

Daniel Dochylo