The Canadian Association of Pension Supervisory Authorities has published an updated version of its guideline No. 8 for defined contribution plans, focusing on three main areas: the payout phase, plan sponsor/administrator responsibilities and advice.
Introduced in March 2014, Guideline No. 8 aims to spell out the rights and responsibilities of DC plan administrators, providers and members. It also guides administrators on the tools and information they should provide members for both the accumulation and decumulation phases.
With legislation permitting variable benefit payments from DC plans passed in a number of provinces and jurisdictions, the guideline provides plan sponsors with guidance on variable benefit products. DC plan administrators must now include information on risk tolerance, longevity and investment risks, as well as how members’ accounts will be invested if they don’t provide investment instructions.
Since variable benefit legislation hasn’t passed in Ontario yet, some plan sponsors are offering alternative payout options, such as group life income funds and group retirement income funds, says Janice Holman, a principal at Eckler Ltd. “But the guidelines don’t clarify what the plan sponsor responsibilities are when offering those types of payout vehicles.”
Holman would like to see some broader clarity for covering other options, though she recognizes the CAPSA writes the guidelines and it’s specifically focused on pension plans.
Plan sponsor responsibility
In terms of plan sponsor responsibility, guideline No. 8 includes additional information on the nature of investments, the level of fees and their impact on returns and income estimates. “Historically, No. 8 was more focused on the contributions, ensuring that members were aware of how much money they could receive from plan sponsor matching,” says Holman.
“Part of [fee disclosure] is from an oversight perspective. Pension regulators want to make sure there’s full disclosure and members are aware of the fees they’re paying.”
Jana Steele, a partner in Osler, agrees. She isn’t aware of any DC litigation cases in Canada, but says there have definitely been ones in the U.S. on reasonableness of fees and disclosure. “So it might be pre-emptory up here to say we know that this type of litigation is a possibility, as we’ve seen it in the States, and we’re trying to address some of these risk factors.”
Holman, however, sees fee disclosure as a benefit. More plan members understanding fees and the value of their group plans will help to promote DC plans, she says. “Employees will ask for them, value them, and want them, and that will drive more plan sponsors to offer DC.”
The guideline also expands its mandate for financial planning and retirement advice. “The historical focus was always on getting investment advice, or investment support,” says Holman. This as a positive addition because investments aren’t the most significant factor affecting people’s outcomes, she says. “When you join the plan, how many years you’re in the plan and how much you’re contributing are going to be much more important.”
This additional advice, she says, is really a recognition of Canadian financial literacy levels. “It’s an understanding that all decisions for DC have been delegated to the member, so they really have to be in a position to figure out how much they should be contributing.”
Steele agrees. “I looked at that as a recommendation that members seek this kind of advice, that they take a more active interest in their retirement products and planning.”