When relationships end, benefits and pensions can be contentious — here’s what HR can do to help
For every two couples that get married each year in Canada there is one divorce, according to Statistics Canada. In 2002, the country saw 146,738 marriages and 70,155 divorces.
Add into the equation common law and same-sex spouses, and there are a lot of relationships going awry. This can put employers in positions where unexpected — and perhaps impossible — demands are made for health-care coverage and a share of retirement savings.
Employees have many important decisions to make on the breakdown of a relationship, such as determining who gets custody of children and possession of the matrimonial home. Most of these require independent legal advice and should not be discussed by HR professionals. There are, however, some points that HR professionals should raise as soon as possible with employees (or their lawyers) to ensure any expectations with respect to benefits are reasonable.
Health-care benefits
One of the major challenges on dissolution of a relationship is the manner in which a domestic contract or court order deals with the continuation of health-care coverage. The terms of such a contract or order may conflict with the terms of the ex-spouse’s group insurance policy.
It is essential for employees or their authorized representatives to be clear on the rules for spousal eligibility under extended health-care plans, preferably before any agreement is signed.
For example, many benefit plans consider a spouse from whom an employee is living separate and apart, but not yet divorced from, to be eligible for coverage. However, once the divorce takes effect, the former spouse is no longer eligible for health-care coverage. If an agreement stipulates the employee is responsible for providing health-care coverage for the former spouse through her employer and that isn’t possible, the only recourse may be for the employee to arrange — and pay for — private coverage.
The employee should also clearly appreciate what the group health insurance contract requires in order to maintain coverage for any children. This includes understanding the definition of “child.” For instance, a domestic contract may require a parent to provide extended health-care coverage for a child up to the age of 25, while the group insurance contract may specify that coverage for children does not extend beyond age 21 unless the “child” is in school. The employee should also be made aware of any necessary supporting documents (such as a court order or “annual dependant certification”) that will be required to provide and continue coverage for children.
Other health-care benefits issues that should be discussed with employees include:
•confirmation of current beneficiaries for each policy, along with the amount of the policy; and
•plan provisional questions, such as details about premiums or coverage reduction formulas that may apply at certain age milestones.
If the company outsources recordkeeping or the administration of the insurance policies, it’s also important to delineate for the employee exactly who is responsible for providing support so any employee requests can be satisfied in a timely fashion.
Pension plans
Because an employee’s pension can be one of the most valuable, and least understood, matrimonial assets, HR professionals can expect a lot of questions whenever there is a marriage breakdown. Again, there is some key information that can be passed on to employees to assist them with questions regarding pension division.
Obtaining a pension estimate
It is common for employees (or retirees) who are experiencing a marriage breakdown to request an estimate of their accrued pension benefits. In many cases, they are instructed by their legal counsel to obtain a commuted value estimate of the benefit. Unfortunately, most pension plan administrators do not provide commuted value estimates for benefits that were accrued during the marriage, except where legally required to do so (such as in Quebec).
In Ontario, plan administrators will generally provide an estimate of the monthly benefits accrued during the marriage payable at age 65. These calculations normally use the “termination method,” which assumes the employee entered the plan on the date she was married and ceased membership on the date of separation. The estimate should also provide relevant calculation data and plan provisions necessary for an independent actuary to calculate the commuted value. However, obtaining the estimate from the plan administrator may take some time. When it is received, the cost of calculating the commuted value of the pension, in most provinces, will be borne by the employee. It is important the estimate provided be accurate.
A quicker solution would be for the employee to see if she can find the annual pension statements amongst her own documents. If not, the plan administrator may be able to reproduce annual pension statements for current and previous years, though this capability is not commonly available. Assuming such statements can be retrieved, they should contain sufficient information to enable an independent actuary to calculate the commuted value of the accrued benefits.
The importance of province of employment
Pension plans that aren’t regulated by federal legislation are registered in the jurisdiction where the plan has the most members. However, in some situations, including marriage breakdown, it’s the pension legislation of the employee’s province of employment that is relevant. This is important, as pension law varies from one province to another. For example, in addition to the commuted value issue mentioned above, consider these provincial variations:
Payment options upon division: In Quebec, an ex-spouse is paid immediately, whereas in Ontario payment is not made until the employee receives her retirement benefits;
Registration of pension division: Some provinces, including British Columbia and Nova Scotia, have formal procedures for registration of pension division.
Marriage breakdown is a trying time for individuals. While HR professionals are not in a position to offer legal advice, basic information regarding health-care and pension benefits can be provided in order to save employees from possible additional trauma and expense and to reduce administrative inconvenience for HR professionals.
Kim Ozubko is a lawyer and legal consultant in Hewitt’s Retirement and Financial Management practice in Toronto. She can be reached at [email protected].
Add into the equation common law and same-sex spouses, and there are a lot of relationships going awry. This can put employers in positions where unexpected — and perhaps impossible — demands are made for health-care coverage and a share of retirement savings.
Employees have many important decisions to make on the breakdown of a relationship, such as determining who gets custody of children and possession of the matrimonial home. Most of these require independent legal advice and should not be discussed by HR professionals. There are, however, some points that HR professionals should raise as soon as possible with employees (or their lawyers) to ensure any expectations with respect to benefits are reasonable.
Health-care benefits
One of the major challenges on dissolution of a relationship is the manner in which a domestic contract or court order deals with the continuation of health-care coverage. The terms of such a contract or order may conflict with the terms of the ex-spouse’s group insurance policy.
It is essential for employees or their authorized representatives to be clear on the rules for spousal eligibility under extended health-care plans, preferably before any agreement is signed.
For example, many benefit plans consider a spouse from whom an employee is living separate and apart, but not yet divorced from, to be eligible for coverage. However, once the divorce takes effect, the former spouse is no longer eligible for health-care coverage. If an agreement stipulates the employee is responsible for providing health-care coverage for the former spouse through her employer and that isn’t possible, the only recourse may be for the employee to arrange — and pay for — private coverage.
The employee should also clearly appreciate what the group health insurance contract requires in order to maintain coverage for any children. This includes understanding the definition of “child.” For instance, a domestic contract may require a parent to provide extended health-care coverage for a child up to the age of 25, while the group insurance contract may specify that coverage for children does not extend beyond age 21 unless the “child” is in school. The employee should also be made aware of any necessary supporting documents (such as a court order or “annual dependant certification”) that will be required to provide and continue coverage for children.
Other health-care benefits issues that should be discussed with employees include:
•confirmation of current beneficiaries for each policy, along with the amount of the policy; and
•plan provisional questions, such as details about premiums or coverage reduction formulas that may apply at certain age milestones.
If the company outsources recordkeeping or the administration of the insurance policies, it’s also important to delineate for the employee exactly who is responsible for providing support so any employee requests can be satisfied in a timely fashion.
Pension plans
Because an employee’s pension can be one of the most valuable, and least understood, matrimonial assets, HR professionals can expect a lot of questions whenever there is a marriage breakdown. Again, there is some key information that can be passed on to employees to assist them with questions regarding pension division.
Obtaining a pension estimate
It is common for employees (or retirees) who are experiencing a marriage breakdown to request an estimate of their accrued pension benefits. In many cases, they are instructed by their legal counsel to obtain a commuted value estimate of the benefit. Unfortunately, most pension plan administrators do not provide commuted value estimates for benefits that were accrued during the marriage, except where legally required to do so (such as in Quebec).
In Ontario, plan administrators will generally provide an estimate of the monthly benefits accrued during the marriage payable at age 65. These calculations normally use the “termination method,” which assumes the employee entered the plan on the date she was married and ceased membership on the date of separation. The estimate should also provide relevant calculation data and plan provisions necessary for an independent actuary to calculate the commuted value. However, obtaining the estimate from the plan administrator may take some time. When it is received, the cost of calculating the commuted value of the pension, in most provinces, will be borne by the employee. It is important the estimate provided be accurate.
A quicker solution would be for the employee to see if she can find the annual pension statements amongst her own documents. If not, the plan administrator may be able to reproduce annual pension statements for current and previous years, though this capability is not commonly available. Assuming such statements can be retrieved, they should contain sufficient information to enable an independent actuary to calculate the commuted value of the accrued benefits.
The importance of province of employment
Pension plans that aren’t regulated by federal legislation are registered in the jurisdiction where the plan has the most members. However, in some situations, including marriage breakdown, it’s the pension legislation of the employee’s province of employment that is relevant. This is important, as pension law varies from one province to another. For example, in addition to the commuted value issue mentioned above, consider these provincial variations:
Payment options upon division: In Quebec, an ex-spouse is paid immediately, whereas in Ontario payment is not made until the employee receives her retirement benefits;
Registration of pension division: Some provinces, including British Columbia and Nova Scotia, have formal procedures for registration of pension division.
Marriage breakdown is a trying time for individuals. While HR professionals are not in a position to offer legal advice, basic information regarding health-care and pension benefits can be provided in order to save employees from possible additional trauma and expense and to reduce administrative inconvenience for HR professionals.
Kim Ozubko is a lawyer and legal consultant in Hewitt’s Retirement and Financial Management practice in Toronto. She can be reached at [email protected].
