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© Copyright 2000 Rogers Media. The following article first appeared in the June 2001 edition of
BENEFITS CANADA magazine.
No safe harbour
The regulators have released their consultation paper on DC plans. It's time for feedback.
To report that the Joint Forum of Financial Market Regulators' new consultation paper on defined
contribution (DC) plans landed on the desks of pension industry stakeholders with a thud is to misrepresent
its heft. It makes more of a smacking sound, appropriate for a 42-page document offering to rewrite the DC
rulebook.
Don't be misled by its brevity. The Joint Forum's Proposed Regulatory Principles for Capital Accumulation
Plans contains ideas that, should they make it past the drawing board stage, will leave some employers
questioning their commitment to DC plan sponsorship. The regulators are moving in a direction that will
increase the regulatory burden on plan sponsors, without providing them any real assurances that they are
acting lawfully.
Glorianne Stromberg--who first proposed the collaboration of pension, investment and insurance regulators
(which is now the Joint Forum) in her landmark report Regulatory Strategies for the Mid-1990s:
Recommendations for Regulating Investment Funds in Canada back in 1995--says plan sponsors deserve clarity.
"It is the bureaucracy of it all," she says of this consultation paper. "It makes me question why you would
even consider sponsoring a (money purchase) pension plan or group RRSP."
U.S. plan sponsors operate within so-called safe harbour guidelines as part of that country's Employee
Retirement Income Security Act (ERISA) of 1974. While some American lawyers argue about the relative safety
of that ERISA harbour, the important point here is that DC plan sponsors deserve a system that clearly
defines their fiduciary duties.
That's what the regulators are trying to do, says Sherallyn Miller, chair of the Working Committee on
Capital Accumulation Plans of the Joint Forum. "If a plan sponsor meets the requirements in the guidelines,
it is much easier to establish that the sponsor fulfilled its fiduciary duties, and acted reasonably in the
circumstances," she says. Miller also chairs the Canadian Association of Pension Supervisory Authorities.
But, as the proposal makes clear, the regulators will not go so far as to make guarantees to law-abiding
plan sponsors. "It is not proposed that plan administrators and employers would be held harmless for
investment losses of members, if the principles were followed," reads the report.
This process will have failed if it does not provide plan sponsors that follow the rules at least some
assurances. "The regulators haven't indicated that they're prepared to stand up and be counted," says
Stromberg. "If they're going to intermediate themselves in this whole area, then they have a responsibility
to put themselves on the line in the same way that they're putting other people on the line."
The Joint Forum team is showing a progressive, healthy concern for the well-being of Canadian DC plan
members. We also applaud them for working closely with the pension industry on this project. The working
committee is accepting feedback until July 31 (for a copy of the paper, visit
benefitscanada.com/regprinciples.pdf).
But the right balance has not yet been struck here. Plan members are a priority, no question. So too are
plan sponsors who play by the rules. Both groups deserve to feel secure in whatever regulatory framework
emerges.
Kevin Press
kpress@rmpublishing.com
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