While the Canadian Life and Health Insurance Association generally supports the Canadian Association of Pension Supervisory Authorities’ proposed guideline on defined contribution pension plans, certain areas require further clarification.
“We recognize that some service providers may require substantial lead time to enhance administrative systems to incorporate functionality, such as capturing and reporting indirect fees, that may not currently exist,” wrote Ronald Sanderson, director of policyholder taxation and pensions at the CLHIA, in a letter to CAPSA chair Angela Mazerolle. “Anecdotally, we understand from some service providers that such system enhancements may take up to 24 months from the date of adoption of a revised guideline. CLHIA would therefore recommend that CAPSA recognize such implementation timelines in the guideline itself.”
In terms of providing information for DC plan members during the accumulation phase, it would be helpful if CAPSA included fees that should be disclosed but aren’t currently listed in the CAP guidelines, such as taxes and frequent transaction fees, wrote Sanderson. He noted how fees are assessed should be reflective of how plan members are informed of them. “For example, fees charged as percentages or as fixed dollar amounts should be reported in the same manner, without any requirement to convert percentages to dollar amounts or vice versa,” wrote Sanderson.
Around investment choices, Sanderson noted the CLHIA believes the proposed guideline should focus on disclosure of material costs “at the level of the investment option” chosen by the plan member and that there doesn’t need to be an explanation that full transparency of costs in “externally managed underlying investment structures” is relevant or possible.
When it comes to information and tools to estimate account balances and benefits, Sanderson said the CLHIA supports flexibility in delivering the information, including the ability for plan members to download estimates from a website. He noted this allows for better integration of old account information, as well as projection and budgeting tools and scenario modeling.
The CLHIA also recommended directing plan members to internet-based resources that discuss financial planning risks. The association feels this may be more practical and efficient and will better serve plan members.
“There is a further complication to such modeling tools in terms of assessing what might constitute reasonable and appropriate limits on investment return assumptions and other inputs in the context of evolving capital market conditions and the range of investment options available,” wrote Sanderson. “In addition, members’ personal choice of timing and amount of withdrawals make push applications impractical.” The CAPSA should also clarify its guidance to permit member-initiated and directed tools, he added.
In a separate letter, Sanderson laid out the CLIHA’s views on its guideline for searching for un-locatable pension plan members, stating the association would welcome guidance from CAPSA on appropriate search methodologies, due to the challenges of mobility among plan members, the prevalence of electronic communications and the lack of connectivity gleaned from long-term employment and small community living.
Sanderson also recommended categorizing these plan members as missing instead of un-locatable. “This term suggests a finality to the individual’s status and therefore perhaps a futility to the search process,” he wrote. “‘Lost’ is unclear regarding whether the status is temporary or permanent. ‘Missing’ would seem to suggest that this may be a temporary, and therefore remediable, status. ‘Missing’ may thus be the better characterization within the guideline.”
In terms of who’s responsible for maintaining accurate records, Sanderson suggested that maintaining contact information between plan members and beneficiaries and plan administrators has to be a joint responsibility. Putting the onus completely on plan administrators isn’t practical or realistic, he noted.
Lastly, he wrote that the CLHIA’s members feel that search methods to find plan members who are owed entitlements will likely evolve as time passes and should be subject to review in light of changing technology and legal guidance.