Canada: Ontario Introduces PBA Amendments In Response To Carrigan Case

Last year, the Ontario Court of Appeal surprised many in the pension industry with its decision in Carrigan v. Carrigan Estate, which essentially established a new priority scheme for the payment of pre-retirement death benefits – and by extension joint and survivor benefits – under the Ontario Pension Benefits Act (the PBA).

The Ontario government has responded to stakeholders' concerns by introducing Bill 151, Strengthening and Improving Government Act, 2013, which includes the following amendments to the PBA:

• clarification of who qualifies as a "spouse" for purposes of entitlement to pre-retirement death benefits and joint and survivor benefits where there is more than one individual potentially entitled to such benefits;
• a discharge to plan administrators who paid out joint and survivor benefits in accordance with specified circumstances (described further below) prior to these amendments coming into force; and
• a discharge to plan administrators who paid out pre-retirement benefits in accordance with specified circumstances (described further below) prior to October 31, 2012 (the date the Carrigan decision was released).

How Did Pre-Retirement Death Benefits Work Prior to Carrigan?

Prior to the Ontario Court of Appeal decision in the Carrigan case, it was commonly accepted that if a pension plan member died prior to retirement, then the member's spouse on the date of death was entitled to the pre-retirement death benefit, unless the member and spouse were living separate and apart or the spouse had waived entitlement to the benefit. Under the PBA, "spouse" means, except where otherwise indicated in the PBA, either of two persons who,

(a) are married to each other, or

(b) are not married to each other and are living together in a conjugal relationship,

(i) continuously for a period of not less than three years, or

(ii) in a relationship of some permanence, if they are the natural or adoptive parents of a child, both as defined in the Family Law Act;

This definition of spouse includes same-sex and "common law" spouses.

Ontario Court of Appeal Decision

In the Carrigan case, Ronald Carrigan, the pension plan member, died prior to retirement. At the time of his death, there were two individuals potentially entitled to the pre-retirement death benefit as his "spouse": (1) Melodee Carrigan, who was legally married to Ronald but from whom he had separated; and (2) Jennifer Quinn, who had been living in a conjugal relationship with Ronald for about eight years prior to his death.

The Court of Appeal interpreted the PBA in a very narrow and technical manner, concluding as follows:

• Melodee was not entitled to the death benefit, because she was living separate and apart from Ronald at the time of his death (that conclusion was not controversial).
• Even though Jennifer qualified as a "spouse" under the PBA and was not living separate and apart from Ronald at the time of his death, because Ronald had never divorced Melodee but had only separated from her, Jennifer was not entitled to the death benefit either.
• Since there was no qualifying spouse, the death benefit was payable to Ronald's designated beneficiary.

The Court of Appeal's decision contradicted the understanding under which virtually everyone in the pension industry had been operating – that in such circumstances the common law spouse, Jennifer, would be entitled to the death benefit.

The Carrigan case also raised questions about the interpretation of another provision of the PBA: specifically, the provision requiring that where a member has a qualifying spouse on the date of retirement, the pension must be paid in "joint and survivor" form (that is, a pension for the life of the member, with a survivor pension payable to the spouse if the member dies before him or her), unless waived by the spouses. The decision in Carrigan suggested that this requirement would not apply where the qualifying spouse is a common law spouse, but the member is still married to a former spouse from whom the member is separated.

On March 28, 2013, the Supreme Court of Canada denied leave to appeal the Carrigan decision. As a result, the Court of Appeal decision became settled law. At that point, numerous stakeholders, including many pension plan administrators, encouraged the Ontario government to enact an amendment to the PBA to reinstate the industry's prior understanding regarding spousal entitlement to pre-retirement death and joint and survivor benefits.

PBA Amendments

The amendments set out in Bill 151 do just that. Changes to s. 48 of the PBA clarify that in circumstances where a pension plan member is legally married to a spouse from whom he or she is separated, is living with a new spouse in a common law conjugal relationship, and dies prior to retirement, the common law spouse will be entitled to the pre-retirement death benefit.

Amendments to s. 48 of the PBA will also provide a discharge to any pension plan administrator who made a payment to the common law spouse in such circumstances, if the payment was made prior to October 31, 2012, which is the date the Carrigan decision was rendered. No discharge is available if, after that date, a payment was made to the common law spouse in such circumstances: at that point, administrators should have been making payments in accordance with the decision in Carrigan.

Similar amendments to s. 44 of the PBA clarify that where a pension plan member is legally married to a spouse from whom he or she is separated, is living with a new spouse in a common law conjugal relationship, and the plan member commences a pension, the pension must be paid in a joint and survivor form (with the survivor pension payable to the common law spouse should he or she survive the member), unless the member and the common law spouse waive this form of pension. A discharge is also available under s. 44, where a pension plan administrator paid or is paying a joint and survivor pension that commenced prior to the effective date of the amendment, the member had a married spouse from whom he or she had separated and also had a common law spouse, and the common law spouse is the spouse entitled (or potentially entitled) to the survivor pension.

The amendments in Bill 151 will no doubt be welcomed by pension plan administrators, many of whom felt that the Carrigan case resulted in unfairness to common law spouses, in situations where the pension plan member had separated from but not divorced a prior spouse.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.