Budget Bill Includes Carrigan Pre-Retirement Death Benefit Fix
Date: August 5, 2014
The Ontario government has taken steps in its 2014 Budget to address the impact of the Ontario Court of Appeal’s 2012 decision in Carrigan v. Carrigan Estate (“Carrigan“).
On July 24, 2014, the Ontario Legislature passed Bill 14, the Building Opportunity and Securing Our Future Act (Budget Measures), 2014 (“Bill 14”), which implements some of the proposals contained in the recently tabled Budget, entitled Building Opportunity, Securing Our Future (the “Budget”). The Budget was summarized in our July 17, 2014 FTR Now, “Ontario Budget 2014“.
Of particular interest to pension plan administrators with Ontario members, Bill 14 amended the Pension Benefits Act (Ontario) (“PBA”) to clarify the priority that applies when paying pre-retirement death benefits in “dual spouse” situations. A “dual spouse” situation arises when an Ontario pension plan member who is living in a common-law relationship with one individual dies while separated but not divorced from a second individual who is a spouse by marriage. While the pension industry had a long-held practice and understanding of paying the common-law spouse in “dual spouse” situations, this understanding fundamentally changed on October 31, 2012 when the Ontario Court of Appeal issued its decision in Carrigan.
As previously discussed in our November 7, 2012 FTR Now, “Ontario Court of Appeal Decision Rewrites the Pension Pre-Retirement Death Benefit Regime“, Carrigan involved a dispute over entitlement to pre-retirement death benefits where the member, Mr. Carrigan, died while married to his former spouse (Mrs. Carrigan), from whom he was living separate and apart, but while he was living with a common-law spouse (Ms. Quinn). Both spouses claimed entitlement to the death benefits.
A majority of the Court of Appeal confirmed that section 48(1) of the PBA gives a member’s spouse priority to pre-retirement death benefits. However, the Court assumed that both Mrs. Carrigan and Ms. Quinn met the definition of “spouse” in the PBA. The majority then held that because Mrs. Carrigan (the spouse by marriage) was living separate and apart from Mr. Carrigan at the date of his death, section 48(3) of the PBA caused section 48(1) not to apply, which disentitled either spouse from receiving the death benefits. Based on this analysis, neither Ms. Quinn nor Mrs. Carrigan was entitled to the pre-retirement death benefit as a spouse under section 48(1) of the PBA. Under the PBA, where there is no eligible spouse, the death benefit is then payable to the member’s designated beneficiary. Accordingly, the Court of Appeal awarded the pre-retirement death benefit to Mrs. Carrigan and her daughters as the designated beneficiaries instead of to Ms. Quinn as the common-law spouse.
AMENDMENTS CLARIFY ENTITLEMENT TO DEATH BENEFITS
The PBA amendments correct the uncertainty regarding the administration of death benefits caused by Carrigan by clarifying that effective July 24, 2014 when a pension plan member is legally married to a spouse from whom the member is living separate and apart and is also in a relationship with an eligible common-law spouse on the member’s date of death, the common-law spouse will be entitled to the pre-retirement death benefit payable under the pension plan.
Corresponding amendments were also made to the PBA in respect of the payment of joint and survivor pensions when a member retires. These amendments address circumstances when a plan member is legally married to but separated from a spouse and also has a common-law spouse on the date of retirement. The amendments clarify that the pension must be paid as a joint and survivor pension with the common-law spouse entitled as the member’s survivor.
The PBA was further amended to include the following discharge provisions:
- with respect to retirement pensions, a discharge is available to plan administrators who began paying a joint and survivor pension prior to July 24, 2014 (the date on which Bill 14 came into force) based on a member’s common-law relationship even though the member was not divorced from his spouse by marriage; and
- with respect to pre-retirement death benefits, a discharge is available to plan administrators who paid the death benefit to a common-law spouse before October 31, 2012 (the date the Court of Appeal released Carrigan), where the member was not divorced from his spouse by marriage.
The discharge provision for the payment of pre-retirement death benefits is only applicable to payments made prior to October 31, 2012. There is, therefore, no discharge for pre-retirement death benefits paid to common-law spouses on or after October 31, 2012 and before July 24, 2014 in a “dual spouse” situation. Payments arising in the intervening period are subject to the Court of Appeal’s reasoning in Carrigan.
However, for pre-retirement deaths on and after July 24, 2014, the PBA is clear that if, on a member’s death he or she is in a “dual spouse” situation, it is the common-law spouse who is entitled to the death benefit, and not the separated spouse. Accordingly, any entitlement to death benefits that arises on and after July 24, 2014 may now be paid out to the common-law spouse if a member died in a “dual spouse” situation.
The amendments to the PBA have brought about much needed clarity and certainty for plan administrators faced with making payments in “dual spouse” situations. However, due to the way in which the PBA was amended, the findings in Carrigan will continue to apply to pre-retirement deaths that occurred prior to July 24, 2014 where payment had not been made before October 31, 2012. Plan administrators will need to review any outstanding pre-retirement death benefit payments owing in “dual spouse” situations for deaths prior to July 24, 2014, and will also need to consider what should be communicated to plan members and deferred vested members about these developments.
If you have any questions about Bill 14 or Carrigan, please feel free to contact Stephanie Kalinowski or Susie Taing, or any member of Hicks Morley’s Pension, Benefits & Executive Compensation practice group.
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