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© Copyright 2002
Rogers Media. The following article first appeared in the March 2002 edition of
BENEFITS CANADA magazine.
Roles and responsibilities
The DC industry needs a regulatory framework that
supports all stakeholders. ACPM and PIAC are calling for more
consistency.
BY KEVIN DOUGHERTY
 Stakeholder groups agree that a better and more
consistent regulatory framework is needed. But it must support plan members,
sponsors and industry providers alike. Since the Joint Forum of Financial
Regulators released its regulation proposals, the industry has expressed
concern. Here are the key concerns with the report.
The proposal for harmonizing regulations
relies heavily on a securities model. It does not recognize the distinct
responsibilities of sponsors and administrators, and there is no apparent
accountability for members concerning investment losses. Assigning
responsibility to members is key as these individuals are the main stakeholders
in DC plans.
The Association of Canadian Pension Management (ACPM) and the Pension
Investment Association of Canada (PIAC) call for a clarification between the
roles of the sponsor and administrator. The sponsor's role is to establish a
plan as part of a total compensation package and to design the plan. The
administrator's role is to implement and oversee the plan. The employer may--but
not always--act in both of these roles.
Defining roles is important as the legal or fiduciary duty of an employer is
unclear if the plan is not intended to be a retirement savings vehicle.
ACPM and PIAC stress that the members' role and responsibility is to
establish a personal level of savings and risk tolerance. Yet the Joint Forum
report says it has "...not proposed that administrators and employers would be
held harmless for investment losses of members." This is a major issue that
needs to be resolved.
Employers should not be held responsible for members' investment decisions.
There should be a limit on the liability of employers and administrators.
Clarification of the roles and responsibilities of each stakeholder is essential
and would eliminate the need for 'safe harbours' for employers.
The proposals also ignore current practices in the retirement industry
regarding the education of plan members. The liabilities associated with
providing education or advice are not clear and no 'safe harbours' are
established.
The ACPM and PIAC urge the Joint Forum to accept current industry practices
on investment education and disclosure. Implementing a mandatory 'know your
client' rule from the securities industry is not necessary, and it puts DC plans
at a disadvantage with investment products offered by discount brokers.
In a DC plan, the employer is not out to make a profit. There is no incentive
to promote unsuitable investment options. Providing investment advice should be
optional. If it becomes mandatory, the cost could be prohibitive.
Finally, the ACPM and PIAC support the harmonization of existing pension,
securities and insurance regulatory regimes. But these groups feel strongly that
there is no need for additional regulations.
Once again, compliance with multiple regimes would put employer-sponsored
plans at a disadvantage with the retail market. It would also drive the cost of
offering DC plans higher, which is clearly not in the best interest of sponsors
or members.
The promise of a DC plan is to provide a cost-effective and convenient means
of saving, focusing on--but not limited to--retirement. Throughout the process
of reforming regulations, it is important to keep in mind that employers do not
have to offer these plans.
The goal of regulatory change should be focused on establishing a
best-practices model that avoids unnecessary complications.
Sponsors migrated away from DB plans when regulations and the corresponding
costs of running plans became too great. DC plans need to be protected from this
fate, and the industry favours best practices over more regulation. BC
Kevin Dougherty is
vice-president of group retirement services with Sun Life Financial in Toronto.
kdoug@sunlife.com. Kevin moderated a
session at which Gretchen Van Riesen of CIBC and John Denham of IBM spoke about
the implications of proposed regulatory changes to plan sponsors and the
ACPM/PIAC response to regulators.
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