Guy Martel, GML Actuarial Services Family Law Institute April 19, 2013

 Pension valuations  Income tax issues  Division of a pension in pay (Ontario PBA)  Double dipping issues  Challenging the rules  Other calculations

 Provincially regulated plans  Federally regulated pension plans (PBSA)  Federal government employees (PSSA, CFSA, RCMP, …)  Foreign Plans  Non-registered Supplemental plans (SERPS)

 Parties do not want to wait  Privacy: does not want employer or spouse to know  Separation not finalized or other side not cooperating  Missing components of value (contractual indexing, some bridge benefits)  Review statement of Family Law Value

 After tax value of pension  After tax value of other assets  Gross up on equalization payment

Situation House worth $ 300,000 Applicant: age 50, federal public servant for 25 years,including 22.5 years during marriage, average salary of $100,000 at FLVD Respondent: age 50, with OMERS for 10 years, all during marriage, average salary of $45,000 at FLVD

Respondent keeps the house Applicant Respondent House$ 300,000 Pension $ 860, ,000 Disposition costs (23%/10%) (197,800) (10,000) $ 662,200$ 390,000 Equalization payment (136,100) 136,100$ 526,100

Should 10% projected tax rate of Respondent be used for gross up?  Tax rate of respondent will increase to 13.35% if the amount transferred is $151,222 ($136,100 / (1-.10)).  Gross up at rate of 13.5% =>$136,100 / (1-.135) = $157,341

Spouses will not end up with assets of equal value after gross-up Applicant Respondent House$ 300,000 Pension $ 860, ,000 Pension transfer (157,341) 157,341 Disposition costs (21.7%/13.5%) (152,477) (34,741) $ 550,182$ 522,600

$175,912 should be transferred so that they have equal assets after division Applicant Respondent House$ 300,000 Pension $ 860, ,000 Pension transfer (175,912) 175,912 Disposition costs (21.5%/14.1%) (147,079) (38,903)$ 537,009

House is divided 50/50 Applicant Respondent House$ 150,000$ 150,000 Pension 860, ,000 Disposition costs (23%/10%) (197,800) (10,000) $ 812,200$ 240,000 Equalization payment (286,100) 286,100$ 526,100

Gross up at 18.3% =>$286,100/(1-.183)= $350,184 Applicant Respondent House$ 150,000$ 150,000 Pension 860, ,000 Pension transfer (350,184) 350,184 Disposition costs (19.8%/18.3%) (100,944) (82,384) $ 558,872$ 517,800

Would it be better if before tax values of pension equalized? Applicant Respondent House$ 150,000 $ 150,000 Pension 860, ,000 Pension transfer (380,000) 380,000 Disposition costs (19.5%/18.8%) (93,600) (90,240) $ 536,400 $ 539,760

Deemed arrears repayment requirement ◦ If active at FLVD, spouse’s share will be credited with interest to date of transfer ◦ If retired at FLVD, arrears payable to spouse will be accumulated with interest ◦ Member’s pension is reduced by spouse’s share ◦ Monthly payments to member will be further reduced to recover overpayment between date of retirement and date of transfer ◦ If in pay at retirement, pension of spouse will be increased to recover payments the spouse should have received between FLVD and date of transfer

Example -Family Law Valuation Date: March 1, Applicant, age 65, receives a non-indexed pension of $4,000 per month at FLVD - Pension was entirely accrued during marriage - Division occurs March 1, 2013

Example -If 50% division, spouse should have received $2,000 per month for last 36 months - Arrears of $75,955 ($72,000 plus interest) - Arrears represent an annual amount of $5,804 for the applicant’s lifetime - Respondent will receive $29,804 per year (62.09% of pension) - Applicant will be left with $18,196 per year (37.91% of pension) - Spouse may have received spousal support between the FLVD and the date of division

Example - Dividing the pension 50/50 will result in double dipping % of pension ($19,326 per year) should be allocated to spouse - Arrears will be of $61,164 ($57,978 plus interest) - Arrears represent an annual amount of $4,674 for the applicant’s lifetime - Respondent will receive $24,000 per year (50% of pension) - Applicant will be left with $24,000 per year (50% of pension)