“Spouse in the house” rule upended

Prior to the OCA’s decision in Carrigan v. Carrigan Estate, pension plan administrators, who often direct their members on how to identify their beneficiaries, believed that common-law spouses normally met the definition of “spouse” under section 48 of Ontario’s Pension Benefits Act (PBA), and that they should receive the pension benefits.

The OCA judgment that’s altered that thinking involves claims by the late Ronald Carrigan’s common-law wife, Jennifer Quinn, and his first wife, Melodee Carrigan. Ronald and Melodee were never divorced. Both women claimed the death benefit from Carrigan’s pension.

The trial judge had ruled that Quinn, who lived with Carrigan at the time of his death, was entitled to the death benefit. However, in 2002, two years after Carrigan began living with Quinn, he formally designated Melodee and his two daughters as beneficiaries of the death benefit. Quinn, however, did not sign any waiver.

MUDDIED WATERS

The OCA decided to give effect to that designation, trumping Quinn’s spousal claim. In a split ruling, Justice R.G. Juriansz stated: “Neither Mrs. Carrigan nor Ms. Quinn is entitled to the pension benefit as a spouse. Rather, Mrs. Carrigan and her two daughters are entitled to Mr. Carrigan’s death benefit as his designated beneficiaries.” The decision also states: “In my view, the structure of the PBA left it to [Ronald Carrigan] to decide how his pension, the value of which he accumulated over his entire working career, was to be distributed.” Leave is being sought to appeal.

This ruling puts new pressure on both advisors and pension plan administrators to ensure that the designated beneficiary form is filled out properly, says Mitch Frazer, a pensions and benefits lawyer at Torys LLP in Toronto.

“A situation that most pension plan administrators would have looked at as relatively clear to interpret has now been muddied by the decision of a relatively high-ranking court,” Frazer says. Prior to this judgment, he adds, administrators followed the so-called “spouse in the house” rule: “If you’re in the house and you’re living with the common-law spouse, that’s your spouse.”

@page_break@After employees join a pension plan and designate a beneficiary, says Elizabeth Boyd, a pensions and benefits lawyer with Blake Cassels & Graydon LLP in Toronto, they often don’t remember to amend this designation as their circumstances change.

It’s likely that administrators are now reviewing their practices, Boyd adds, as it’s not certain if and when there may be legislative action following the Carrigan decision: “If the Supreme Court either declines to hear the appeal or agrees with the Ontario Court of Appeal, the government may need to look at whether there should be some legislative solution.”

DUE DILIGENCE

Going forward, Boyd advises pension plan administrators to be very cautious before making payments to claimants. Administrators now need to do “perhaps more due diligence than they would normally have done, if there is a common-law spouse of a deceased member.”

Plan administrators “should be examining their practices on beneficiary designations,” Boyd adds, “and looking at whether it’s feasible to get fresh designations.”

Some pension plans have thousands of members, so the cost of conducting wide-scale beneficiary designation-updating projects could be significant, says Boyd, but doing so would be prudent.

In a case in which the administrator may already have paid the incorrect spouse, Frazer recommends waiting until a claim is brought forward. Find out how the Supreme Court rules before taking any potentially corrective action: “If you’re aware that you’ve made an error, then you need to rectify that error. But most of this is going to be relatively grey, so I think you have to wait and see if any of the parties take action. Then, have a dialogue with the parties.”

Frazer recommends that pension plan administrators email a reminder annually to plan members, reminding them that if their status changes, they should let the administrator know.

Frazer says the reminder could simply read: “A recent Ontario Court of Appeal decision has highlighted the issue of who is the designated beneficiary of a pension plan. If you are separated or have been divorced and are living with another individual, we highly recommend that you check to make sure that your designated beneficiary form is up to date.”

If an appeal is granted, says Boyd: “It would be tremendously comforting if the Supreme Court were to come to a different conclusion.”

She suggests a more policy-driven analysis might deliver a ruling that is more consistent with industry practice in this area.

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