Canada: Jarman V. Jarman: Does Provincial Family Law Legislation Apply To A Supplemental Retirement Plan?

The British Columbia Supreme Court's recent decision in Jarman v. Jarman raises important jurisdictional issues for administrators of supplemental retirement plans (SRPs), confirming that these plans may be subject to provincial family law legislation in circumstances involving the marriage breakdown of a member of the plan.

Background

Mr. Jarman was an Air Canada pilot who participated in two Air Canada pension plans, a defined benefit registered pension plan and an SRP. It appears from the judgment that the SRP was a non-registered supplemental plan. At issue in this case was whether the payment due to Jarman's former spouse from the SRP was subject to provincial family law legislation, and consequently payable directly from the Air Canada SRP.

Air Canada took the position that the Air Canada SRP was not governed by the British Columbia Family Relations Act (the FRA) and that their administrative policy should apply. This administrative policy placed the onus on the plan member, or potentially his/her new spouse in the case of survivor benefits, to pay a former spouse his/her entitlement (i.e., the former spouse would not be paid directly from the Air Canada SRP).

The B.C. Supreme Court began its analysis by noting that the definition of "pension plan" in the federal Pension Benefits Standards Act, 1985 (the PBSA) (being the statute applicable to Air Canada's registered pension plans) includes a "supplemental pension plan". The Court then noted that under the PBSA, pension plan benefits are "subject to the applicable provincial property law". Since "provincial property law" is defined in the PBSA to include property division on marriage breakdown, the FRA was held to apply to Air Canada's SRP. As a result, Mr. Jarman's former spouse was entitled to have her share of the SRP paid directly to her by Air Canada.

What Does This Case Mean for Administrators of Supplemental Plans?

Section 28.5 of the regulations to the PBSA (the PBSR) states that an SRP is exempt from the application of the PBSA if the terms of the pension plan to which the SRP is supplemental entitle all members of the SRP to benefits at least equal to the maximum benefit or contribution limit under the federal Income Tax Act (the ITA). SRPs are typically established as "top-up" plans for higher-earning individuals who are limited by the ITA in the amount of benefits they can receive out of the registered plan. If the SRP only provides top-up benefits for such individuals, then it will be exempt from the PBSA, and thus the applicability of provincial family law legislation in circumstances involving marriage breakdown of a member of the plan will not flow from the requirements of the PBSA.

Despite certain SRPs being exempt from the application of the PBSA by virtue of section 28.5 of the PBSR, however, plan administrators should still review their obligations under the applicable provincial family law legislation itself. For example, the FRA appears to apply to all supplemental plans provided to employees in B.C.. Therefore, even if an SRP provided to B.C. members is not subject to the federal pension legislation, nevertheless the administrator will be required to administer the pension split pursuant to the requirements of the provincial family property legislation itself.

Jon Marin advises on legal and regulatory issues affecting all aspects of provincially and federally regulated pension plans and other employee benefit plans.

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