Guy Martel, GML Actuarial ServicesFamily 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 houseApplicant Respondent

House $ 300,000Pension $ 860,000 100,000Disposition costs (23%/10%) (197,800) (10,000)

$ 662,200 $ 390,000Equalization payment (136,100) 136,100

$ 526,100 $ 526,100

Should 10% projected tax rate of Respondent beused 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 valueafter gross-up

Applicant RespondentHouse $ 300,000Pension $ 860,000 100,000Pension transfer (157,341) 157,341Disposition costs (21.7%/13.5%) (152,477) (34,741)

$ 550,182 $ 522,600

$175,912 should be transferred so that they haveequal assets after division

Applicant RespondentHouse $ 300,000Pension $ 860,000 100,000Pension transfer (175,912) 175,912Disposition costs (21.5%/14.1%) (147,079) (38,903)

$ 537,009 $ 537,009

House is divided 50/50Applicant Respondent

House $ 150,000 $ 150,000Pension 860,000 100,000Disposition costs (23%/10%) (197,800) (10,000)

$ 812,200 $ 240,000Equalization payment (286,100) 286,100

$ 526,100 $ 526,100

Gross up at 18.3% =>$286,100/(1-.183)= $350,184

Applicant RespondentHouse $ 150,000 $ 150,000Pension 860,000 100,000Pension transfer (350,184) 350,184Disposition 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 RespondentHouse $ 150,000 $ 150,000Pension 860,000 100,000Pension transfer (380,000) 380,000Disposition 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, 2010- 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- 40.26% 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)