CAPSA must clarify sections on fees in DC guidelines: ACPM

The Association of Canadian Pension Management is weighing in on the Canadian Association of Pension Supervisory Authorities’ consultation on its defined contribution pension plan guideline.

In a letter to the CAPSA, the association said it’s concerned about the requirements related to decision-making tools and requiring plan administrators to provide annual estimates of member account values and the expected values that may result.

“We do not think that CAPSA should go beyond making a suggestion that such tools and estimates may be useful or CAPSA should expressly state that it is prudent for a plan administrator to rely on the tools and estimates provided by the plan fund holder,” stated the letter. “Tools and estimates are both costly and carry risk for the plan administrator, and we would not want to discourage the establishment of [capital accumulation plans].”

Read: CAPSA consulting on variable benefits, fee disclosure in DC plans

As well, the ACPM’s letter acknowledged that, while fees are an important component of CAPs, the guideline includes a number of sections on fees that require clarification. First, it asks what it means to consider the impact of fees on returns. For example, what does the plan administrator need to tell the member beyond the return and the fee relevant to the return? Second, it asks about the references to indirect fees and what they mean in the context of a CAP. And third, it asks what the “nature” of fees means.

Also with regards to fees, the letter noted plan administrators shouldn’t be responsible for disclosing fees post-retirement. Instead, fund holders should be clear about those fees.

When it comes to the responsibilities of members, the letter recommended that the CAPSA’s guideline indicate members are responsible to use the tools provided, that they at least consider obtaining qualified financial planning advice regarding withdrawal amounts from their variable benefits, that they should carefully review the plan-related information they receive from the plan administrator and that they complete, on a timely basis, their elections related to their annual withdrawal amount.

Read: Regulators turning their attention to DC plan rules

The ACPM also suggested it would be useful for the CAPSA to provide some general information in a number of areas that require action from plan sponsors or administrators. “It would seem possible for CAPSA to do so and it would reduce the burden on the sponsors and hopefully promote more CAP coverage,” stated the letter.

According to the association, these areas include:

  • The assumptions used to estimate the value at retirement or an expected periodic return; 
  • Information regarding unlocking options;
  • Broad information about changes in risk tolerance when entering the decumulation stage;
  • Broad information around longevity risks and investment risk, and the impact those risks could have on the members retirement income;
  • Income projection tool; and
  • Information on sustainable withdrawal rates.

Read: How are different countries tackling decumulation?