The recent Ontario Court of Appeal decision in Carrigan v. Carrigan Estate (“Carrigan”) has radically altered our understanding of the priority scheme for payment of pre-retirement death benefits to surviving spouses under Ontario’s Pension Benefits Act (“PBA”). We have previously discussed the estate law and family law implications of Carrigan (see our blog postings here and here), but take this opportunity to discuss its impact on the pension industry.
It would not be unfair to say that Carrigan has sent shivers through the pension industry: the decision has created uncertainty, where previously there was general consensus and established practice in the pension industry.
At the trial level in Carrigan, the Court interpreted the PBA in a manner consistent with the established practice in the industry; i.e. that the spouse (married or common-law) who is living with a plan member at the date of death has priority, and is “the spouse” entitled to the death benefit payable upon the plan member’s death, subject to the operation of a spousal waiver if one exists. As there was no spousal waiver in the case, the common-law spouse was accordingly awarded the pre-retirement death benefit at trial.
However, on appeal, the majority of the Court of Appeal overturned the trial decision. The Court of Appeal interpreted the relevant PBA provisions such that if the married spouse was “living separate and apart” from the plan member at the time of death, the death benefit had to be paid to the plan member’s designated beneficiary (or estate, if there was no designated beneficiary). In the case, the designated beneficiary was the married spouse (from whom the plan member was living separate and apart) and her two daughters. The common-law spouse (who had been living with the plan member at the time of death) was, accordingly, denied the death benefit.
Leave to appeal to the Supreme Court of Canada is currently being sought, and the law in this area is, therefore, in flux. Until there is a decision by the Supreme Court or legislative reform, as a result of Carrigan, a member of pension plan governed by the PBA can no longer assume (as he may previously have been advised by plan administrators) that his common-law spouse will, as of right, be entitled to his pension survivor benefits if he is also survived by a married spouse. Appropriate estate planning and beneficiary designations are now required in order to ensure that the common-law spouse will receive such entitlements.
Subject to further direction from the Supreme Court or legislative reform, Carrigan could change how pension plan administrators pay death benefits in the future in similar circumstances. The decision also calls into question death benefit payments which were made in the past in similar circumstances, creating the risk of claims from deceased members’ named beneficiaries or estates. Until the uncertainty created by Carrigan is resolved, plan administrators will undoubtedly excerise extra caution in administering the pension benefits of members who have died leaving both a married and common-law spouse.
Thanks for reading,