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© Copyright 2000 Rogers Media. The following article first appeared in the June 2001 edition of
BENEFITS CANADA magazine.
Joint Forum releases regulatory principles for DC plans
To contribute, call (416) 596-5998, fax (416) 596-5071
The Joint Forum of Financial Market Regulators has released its long-awaited paper on regulatory guidelines
for defined contribution (DC) plans. The paper, Proposed Regulatory Principles for Capital Accumulation
Plans, outlines principles for disclosure and other regulatory protection for plan members.
The goal of the regulatory principles is to offer a similar level of protection to all members of DC plans
(which include group money purchase pension plans, registered retirement savings plans, deferred profit
sharing plans and employee profit sharing plans), regardless of which jurisdiction's laws apply or the
industry--securities, pension or insurance--in which the funds are invested.
"We're hoping to set up some guidelines which may be incorporated into each of our [regulator's] individual
regulations, both across sectors and across jurisdictions for investment disclosure for members of plans,"
says Sherallyn Miller, chair of the Joint Forum working committee that developed the consultation paper and
superintendent of pensions for British Columbia.
To develop its principles, the Joint Forum looked at current pension, insurance and securities legislation,
as well as the U.S. Employee Retirement Income Security Act (ERISA) of 1974, which provides plan sponsors
with certain protections provided the plan meets ERISA regulations. The broad principles for the Joint
Forum's proposed regulatory model include:
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Obligations with respect to the establishment and maintenance of a DC plan.
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A minimum level of disclosure for new DC plan members and continuous disclosure.
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DC plan members may either rely on advice provided by a registered sales representative or adviser, or
receive and rely upon appropriate investment information from a party that owes fiduciary duties to the
members.
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The investment products or funds must comply with minimum standards (for example, investment
restrictions and practices, valuation/redemptions and fundamental changes).
The paper does not propose that plan administrators and employers be held harmless for investment losses of
members if the principles are followed. However, the principles are designed to meet the concerns of
employers and administrators that their responsibilities are currently unclear.
The lack of a safe harbour guideline in the Joint Forum paper concerns some in the industry.
"I think employers want some certainty. Most Canadian plan sponsors are pretty decent corporate citizens
but nevertheless they still have this nagging uncertainty that no one is able to give them an ironclad
assurance that, at the end of the day, they're not going to get sued," says Fred Vettese, executive
vice-president and chief actuary with Morneau Sobeco in Toronto.
Tony Devir, a lawyer with Osler, Hoskin and Harcourt in Toronto, says that while the Joint Forum paper is a
good effort, it doesn't go far enough. "They're saying 'we're going to clarify it [fiduciary
responsibility] by telling you that you've got these duties' without really telling you what it is you need
to do to fulfil them," he says.
But Miller points out that the purpose of the paper was not to provide specific rules on how the guidelines
should be implemented.
"There is no safe harbour here," she says. "What we're trying to do is, while protecting consumers,
clarifying for employers and plan administrators what their duties are. All fiduciaries have to do is be
reasonable. They don't have to be perfect." She adds: "If an employer can point to this document and say
'we've done all these things and we can show that we've done all these things,' that goes a long way to
show that they've acted reasonably."
Not all plan sponsors are looking for safe harbour guidelines from regulators.
"It's kind of like hockey players wearing more and more protective equipment. The more that is there, the
less cautious they become in their manner of play. And in fact, injuries have increased," says Sharon
Chandler, director of policy and communications with the Colleges of Applied Arts and Technology pension
plan in Mississauga, Ont. "The more you [regulators] say to an employer 'I've put an act together that
protects you so long as you mindlessly follow these precepts' is to throw common sense and that
over-arching fiduciary concern that should exist outside the law books out the window."
While Chandler doesn't argue with the basic principles behind a safe harbour, she worries that plan
sponsors would rely on it too much, to the detriment of plan members.
Once the Joint Forum working committee has received submissions from the industry it will likely release a
final draft of principles. "We'll look at the comments and see how close we are or how far off the mark we
are," says Miller. "If we find the comments are relatively minor, then we may just come out with a final
draft of principles and go from there in fleshing out the details. I think that's where the major debate
will take place."
Written submissions on the report should be sent to Carla Adams at the Financial Services Commission of
Ontario, 5160 Yonge St., 17th Floor, Box 85, North York, Ont., M2N 6L9. Submissions can be faxed to (416)
226-7880. The deadline for submissions is July 31, 2001.
--with files from Kevin Press
Algoma plan faces shortfall
Algoma Steel Inc. is facing a massive shortfall in its defined benefit (DB) pension fund that could result
in its 7,000 pensioners and 4,000 employees facing significant reductions in their benefits if the
steelmaker can't negotiate a restructuring deal to save the company from bankruptcy.
Algoma, based in Sault Ste. Marie, Ont., has told an Ontario court that its DB plan shortfall is about $625
million. Dave Gordon, director of the pension plans branch of the Financial Services Commission of Ontario
(FSCO), says that the Pension Benefits Guarantee Fund--the insurance fund for the province's DB plans
governed by FSCO--only has $230 million in its coffers.
This means that Algoma would need a loan from the provincial government. But Ontario Premier Mike Harris is
refusing to bail out the company. In 1988, the Ontario government gave Massey Combines a loan to cover its
pension shortfall, which was fully paid back.
Gordon says Algoma has complied with all the pension fund requirements and there is no suggestion that it
has made poor investments. However, due to its size, Gordon says Algoma was not required to fund its
solvency deficiencies. Algoma officials will not discuss the issue as it is before the courts.
FSCO's guarantee fund is designed as a protection in the event that an organization is unable to finance
pension payments. It does not, however, guarantee to pay the full amount of the benefits owed to employees.
In fact, Gordon says the fund does not have to cover benefits exceeding $1,000 a month, nor does it
recognize amendments to plans made during the three years prior to a pay out.--Kathryn Dorrell
Homecare commonplace
One in four Canadians is caring for an ill or elderly family member in their home, according to a new
report released by the Canadian Institute for Health Information (CIHI).
Health Minister Allan Rock, who was present at the release of the report in mid-May, says this trend is
troubling as it reflects a downloading of services on to the public. Rock says this issue will be explored
in a study of the Canadian healthcare system that Ottawa announced recently.
The CIHI report reveals another troubling sign that indicates healthcare resources are stretched too thin.
Nurses lose more than three weeks of work on average a year compared to about six-and-a-half days for all
Canadian workers. In fact, nurses are more likely to miss work due to illness and disability than police
officers, firefighters, machine operators and other shift workers, according to the report.
The report also finds that Canadians have better health outcomes if they are treated in a hospital that
frequently performs that procedure. Other highlights from the study:
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Canadians are living longer and research suggests that, compared to 20 years ago, older Canadians can
look forward to a better quality of life in their elder years.
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60% to 70% of Canadians used some sort of alternative healthcare therapy in the past six months,
including herbs and vitamins.
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Public and private spending on healthcare topped $95 billion in 2000, representing a 6.9% increase over
the previous year.
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Drug costs account for more than 15% of total healthcare spending. They are expected to have risen by
9% between 1999 and 2000.
--Kathryn Dorrell
In memoriam
Watson Wyatt announced the passing of Brian Kennedy, managing director of Watson Wyatt Canada, in May.
Kennedy joined Watson Wyatt in 1995 as regional manager after several years with the Alexander Consulting
Group in Canada, the U.K. and Europe. benefits canada extends its sympathy to his loved ones and to his
colleagues at Watson Wyatt.
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