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Normandin Beaudry

Making a pension plan beneficiary designation

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There, in black and white

Bulletin NB Vol. 7 N. 15, September 2004

Although it might seem a simple matter to designate a beneficiary to receive death benefits payable under a pension plan, there are some less obvious aspects to consider. This bulletin describes why it is a good idea to designate a beneficiary, defines the concept of eligible spouse within the meaning of the Act, and explains how to designate and change a beneficiary.

First we should make it clear that there have been no recent changes in the laws governing the designation of a beneficiary. The sole purpose of this bulletin is to inform you about this subject and to answer a few questions we have been asked about it. Please note that we already discussed how to make a life insurance beneficiary designation in last April’s bulletin (Vol. 7, No. 3).

Why designate a beneficiary?

The purpose of making a beneficiary designation is to identify the person(s) who will receive the benefits payable under a pension plan if the plan member dies. It will also help to avoid conflicts about who will receive these payments.

Under the Quebec Supplemental Pension Plans Act (the SPP Act), pre-retirement death benefits from a pension plan are automatically paid to the member’s spouse, regardless of whether or not a beneficiary has been designated. However, if the member does not have a spouse at the time of death or if the member’s spouse dies at the same time, the death benefits are payable to the beneficiary(ies) whom the member designated under the pension plan. If the member does not have a spouse and has not designated a beneficiary at the time of death, the death benefits are payable to the member’s successors.

Where the beneficiary is the spouse, descendant or ascendant of the member, we recommend specifically naming this individual as the beneficiary to protect the benefits, i.e., prevent them from being seized by creditors for example, and to speed up payment of the benefits. The designation of a spouse as a beneficiary becomes null and void after a divorce or the dissolution of a civil union.

It is important to know that the spouse can waive his or her automatic right to pre-retirement death benefits at any time before payment of the benefits starts, by transmitting the appropriate form to the Pension Committee. If this right is waived, the death benefits will be payable to the beneficiary(ies) designated under the plan. The spouse can also revoke this waiver if the Pension Committee is notified in writing before the member dies.

Who qualifies as an eligible spouse?

Under the SPP Act, the eligible spouse is the person who:

  • is bound to a member by marriage or a civil union; or
  • has been living in a conjugal relationship with a member who is not married or united by a civil union, whether the person is of the opposite or the same sex, for a period of not less than three years, or for a period of not less than one year if:
    • at least one child is born, or to be born, of their union,
    • they have adopted, jointly, at least one child while living together in a conjugal relationship,
    • one of them has adopted at least one child who is the child of the other, while living together in a conjugal relationship.

Spousal status is established as of the day payment of the member’s pension begins or as of the day preceding the member’s death, according to which of these two options is provided in the pension plan, or if none, as of the first of these two events.

The birth or adoption of a child during a previous marriage, civil union or period of conjugal relationship may qualify a person as a spouse.

How do you designate a beneficiary?

The simplest way to designate a beneficiary is to complete the appropriate form and transmit it to the Pension Committee.

Instead of explicitly naming a beneficiary, the member can write "Successors" on the form in the space for the beneficiary’s name. If the member does not have a spouse, the successors are the legatees under the will or, if there is no will, the legal heirs as defined in the Civil Code of Québec.

The beneficiary can also be named in the will itself rather than by filling out a beneficiary designation form. If a member decides to do this, the names of the pension plan and the beneficiary must be clearly identified to ensure that the choice made in the will is valid. The most recent designation takes precedence, regardless of whether the designation was made in the will or on the form.

How do you change a beneficiary designation?

Most beneficiary designation forms include a provision for revoking all designated beneficiaries. However, if there is no mention of revocability on the form, the beneficiary is irrevocable. Unless the current beneficiary is irrevocable, the name of the designated beneficiary can be changed at any time, either through a will or by completing the appropriate form. An irrevocable beneficiary can waive the right to receive death benefits at any time.

It is important to understand that the beneficiary for the purpose of the benefits payable under a pension plan bears no relation to the beneficiary whom the member named for life insurance benefits payable under a group insurance plan.

Please note that this bulletin is intended to explain the basic rules that apply to naming a beneficiary under a pension plan registered with the Régie des rentes du Québec and that some exceptions may apply. We recommend that you contact a lawyer or notary regarding any questions or interpretations concerning the law or common practice.

 

Please feel free to contact us for additional information.

514.285.1122
 
630, René-Lévesque Blvd. West, 30th floor
Montreal, Quebec, H3B 1S6