iAtoday

On September 9, the Canadian Association of Pension Supervisory Authorities (CAPSA) released the final version of Guideline No. 3 for Capital Accumulation Plans (the “Guideline”). It sets out the expectations of financial market regulators with regard to the operation of capital accumulation plans and aims to prompt the development of best practices in the establishment, administration and oversight of these plans.

The Guideline came into effect on its release date. It needs to be implemented immediately by plan sponsors and service providers, or as soon as any technological or administrative changes that may be required are completed, no later than January 1, 2026.

The 2024 Guideline supersedes the 2004 version. This update is necessary to incorporate new capital accumulation plans created since this version was released, such as the TFSA, FHSA, VRSP (in Quebec) and PRPP, as well as to address issues related to material changes in financial services over the past 20 years.

The Guideline was the subject of two industry stakeholder consultations in 2022 and 2023 and CAPSA took the feedback gleaned into account for the final version. 

Here are a few highlights:

• Application: The Guideline readily applies to all capital accumulation plans depending on their type, size, complexity and plan-and sponsor-specific characteristics. It also applies to retirement income options where the plan sponsor offers such options in the plan.

• Plan sponsor responsibilities: The definition of sponsor and its responsibilities have been enhanced and include examples. With this new version, the CAPSA admits that sponsors' responsibilities towards plan members may be fiduciary in nature in certain cases.  

• Governance: Plan sponsors must establish and document a governance framework that outlines the roles, responsibilities and obligations of all parties involved. This framework must also include a communication and complaint management process, a code of conduct that addresses the management of conflicts of interest and of risks applicable to the plan. Finally, it must include a process for periodic evaluation of the plan and its governance framework with criteria for assessing the performance of service providers.

• Automatic features: The automatic features, which include, for example, enrolment, escalation of CAP member contributions, and default investment options, must be disclosed to members upon enrolment or amendment to the plan, with the ability to opt-out, if applicable.

• Decision-making tools: The Guideline recommends that plan sponsors provide members with additional tools to help them:

• Estimate the retirement income they will need based on the expenses they expect to have at that stage of their lives.
• Project their retirement income, taking into account planned withdrawals, investment choices and plan fees.
• Make informed decisions about decumulation options.

• Communication and plan member education: Sponsors must establish an ongoing education strategy for plan members. They must also raise awareness about the benefits of not delaying enrolment in an optional plan, the potential consequences of not maximizing employer contributions and provide details on the possible impact of fees. The information can be conveyed through targeted communication campaigns or made available on a website.

• Plan oversight: When evaluating the plan's governance framework, plan sponsors must assess whether fees and expenses provide added value to plan members, particularly in terms of net investment returns, quality of education or other services. To this end, they are encouraged to request detailed information on member fees from service providers, including a breakdown for the various fee categories.

To meet the deadline for implementing the Guideline, we need to revise some documents, create new ones and make adjustments to our IT systems. We are currently assessing the changes required by Guideline No. 3 and will inform you of any amendments to our documents.