Three years ago it was about consolidation. Two years ago the industry was concerned with the Capital Accumulation Plan(CAP)Guidelines and how they would deal with compliance. But this past year the CAP industry has taken a wellneeded time out. The competitiveness that was born of consolidation is now encouraging CAP providers to streamline the way they do business and forcing them to hold onto the existing books of business they already possess. A lot of it has to do with, of course, the demands and needs of the plan sponsors. But there also seems to be a bit of a slowdown in the conversions of defined benefit(DB)plans to defined contribution(DC)plans. Many of the conversions that were going to take place have done so over the past 10 or 15 years and now, CAP providers are left with relatively fewer books of business to compete on.

The need to keep existing business and aid those clients with their current investment and administrative concerns is ever important this year and will be into the next. Although the total growth for the industry was a respectable $7.6 billion dollars from nearly $75 billion in 2005 to $82.6 billion in 2006, the percentage variance between the years was only 10.2%. That’s a decline from last year’s growth variance of 17.4%. Trend or not, there may be fewer assets to compete on. As a result, a lot of what the larger CAP providers are doing feels like a “back-to-basics” approach to service. “The year started with somewhat of an uncertainty with plan sponsors about the CAP Guidelines,” says Bruce Moir, national product manager with ScotiaMcleod in Toronto. “[But] it’s the old cliché of growing business one client at a time. We didn’t see mass movement of plan sponsors and we found plan members continuing to consolidate their assets with us. That’s where we continue to grow,” he adds. And, notes Moir, because they “live” in the regulatory world of the CAP Guidelines, advice and education are the keys to keeping those plan members and assets under their management.

And the numbers seem to support Moir’s opinion that fewer conversions have been taking place. According to the 2006 Capital Accumulation Plan Report, there were 4.3 million lives covered in Canadian CAPs in 2006, a relatively small increase from the 4 million lives indicated in the 2005 report.

But others in the industry echo Moir’s sentiment about the lack of asset movement in the industry and aggree that the more CAP providers can simplify their offerings, the better they will fare against competition. “Plan sponsors want to simplify investment options, simplify the communications so that it’s clearly understood, and in some cases simplify the programs themselves,” says Montrealbased Standard Life president Joseph Iannicelli. A little more than a decade ago, he says, Standard offered five investment funds to plan sponsors. Currently there are 85 investment funds from 15 different managers. He notes that some plan sponsors will ask to include more funds “and we say ‘why?’” As long as there are good quality managers and products, there is no real reason to expand the investment choices and confuse plan sponsors, Iannicelli stresses. “Customers are thinking, ‘maybe we need to streamline this a little bit more,’” he adds.

But Iannicelli supports the notion that there are fewer assets to chase after than there were a decade or so ago. Not unlike the experience at ScotiaMcleod, he says there is a lot of activity in the existing Request-for-Proposal (RFP)level. “We [as an industry] are cannibalizing each other a little bit more and we’re being a little bit more aggressive.” He also says that some of the business is coming from making sure clients are maximizing investment potential and transferring from other institutions. Iannicelli thinks fees may have to come down and service and communication will have to continually be better. The key, he says, is retention through value and service.

Other CAP providers are also sounding the alarm of simplicity. “The message has to be simpler and it has to be easier to understand, from the member’s perspective,” says Barbara Coulter, managing partner with Integra Capital Management in Oakville, Ont. She, like Iannicelli and Moir, says the industry is looking at simplifying the entire process.

Growth can also come from being the only game, or in this case plan, in town, notes Bill Sipes, marketing director, group savings and retirement solutions with Manulife Financial in Waterloo, Ont. “If an employer is going to put a retirement savings benefit program in place for their employees, it’s going to be a CAP. We are not seeing any new defined benefit plans covering an employee workforce being established.”

But Sipes disagrees with the notion that the DB to DC conversions have slowed down. DB plans continue to have many complex issues to deal with, from funding shortages, to surplus ownership, to a complex accounting environment.

“I think consistently as we move forward, companies will continue to look very hard at their existing DB plans and decide whether they will continue to meet their objectives. While I don’t think there is a big wave of DB plan terminations on the horizon, I due expect we are going to continue to see DB plans being wound up or capped to new entrants.”

And with the movement towards more employee-directed retirement plans, comes the need for engagement and encouragement. Mary DePaoli, vice-president, group retirement services with Sun Life Financial in Toronto, says there are essentially three drivers for growth for the CAP industry.

First, is the need to inform employees of their options. “It is astounding the number of Canadians that have employer matches in their plan and they either don’t know the match exists or they do know and they don’t maximize it.” As a result, she says, some plans are underutilized. Plan sponsors(and providers)should encourage employees to maximize contributions and should discourage them from withdrawing from their plans too early. These issues can and will help fuel growth. Second, she points out, there will still be some merger and acquisition activity in Canada in the next two years which will help grow some businesses. The third dimension is the everyday transactions that are part of the industry, and that comes from sponsors seeking out innovative providers. “Companies that continue to invest, through innovation, will still see…business changing hands. There’s still lots of [room for] growth out there,” she stresses.

DePaoli goes even one step further and says the issues are becoming less about product and more about helping plan members. “Products like asset allocation funds are really leading indicators that people want help. Advice allows the member to work freely in any portfolio and it moves from a product question to an assistance question.” In fact DePaoli says one of the trends that will move into Canada from the U.S. are managed accounts whereby plan members give their accounts over to a financial planner who look after it for them. She says the assistance and advice are, in essence, what will drive plan members, sponsors and ultimately the industry, in the years to come.

But the growth in the industry being spurred by retention, conversion and innovation has not completely trumped the lasting influence of the CAP Guidelines. Brendan George, a senior vice-president with Aon Consulting in Vancouver, says some of the growth over the past year has come from an increased focus on governance. As a result, the industry has had to increase some services to meet these needs. “The main service providers have had to ramp-up their service to be able to prove to their clients that they are CAP compliant.” It has generated a “stand-back” review of plan sponsors, thus fueling more need for service, choice and products, notes George.

Bill Kyle, senior vice-president, Group Retirement Services, Great-West Life, London Life, Canada Life in London, Ont., agrees and sees areas for growth as a direct result of the Guidelines. “The implementation of the CAP Guidelines was an early focus for 2006. While we were out speaking to our sponsors well in advance of the effective date, we were and are still helping sponsors implement strategies to comply, particularly with some of their own practices and documentation,” he notes.

Dave McLellan, vice-president, defined contribution solutions for Fidelity Investments Canada in Toronto, also sees the CAP Guidelines as a jumping-off point whereby the industry will see some growth. “We’re seeing more plan sponsors looking at their CAPs through a new lens” as a result of the CAP Guidelines. He adds that CAPs are moving from self-administration—from firms whose core business is not recordkeeping—and are looking for providers with more discipline. “We’ve certainly seen it for plan sponsors who are doing a lot of work themselves.” McLellan says it does translate into more business and has been fueling growth. Also, many plan sponsors are forming formal committees, are updating plans, which could mean reducing the number of investment options. “It’s a zero-sum game,” he says. As befits the theme of the CAP industry in 2006, McLellan points to the needs of plan sponsors and the ability to make things more streamlined for them as a driver for growth. In a move for simplification, he notes, “We don’t want to have to send out a 20 or 30 page document to members to try and engage them and the plan members don’t want them either. If you can start targeting your message better, it’s a win-win.”

One of the trends for the CAP industry, that began in the United States and has moved its way into Canada, has been the introduction of lifecycle funds and target-date funds. While not necessarily fueling growth for an entire industry, these funds have allowed providers to give their plan member clients the option to put their retirement plans on autopilot. McLellan says the popularity of these funds in the U.S. led clients to request them here at home. But some might be concerned that lifecycle and target date funds disengage members too much from their decision-making. And while “there’s no silver bullet” according to McLellan, these funds do meet a need for certain plan sponsors and members who would otherwise never be engaged in their plans in the first place.

It may not excite those in the CAP industry to hear it but slow and steady is the course of action for the foreseeable future. One thing that providers are realizing is that DC plans are not just a means to pass responsibility onto employees without being a part of the process. “You can’t simply transfer the investment risk from the company to the employee and just wash your hands of it and I think people are starting to realize it’s a more complex arrangement than that,” says Andrew Harrison, partner and head of the Toronto pension practice with Borden Ladner Gervais.

Service, education, growth of business through internal means(not just acquiring new books of business)appear to be the order of the day for many of the industry’s providers. And if the conversion of plans and number of plans available is, in fact, in a down cycle, the back-to-basics approach of the CAP industry will likely carry their growth prospects into the near future.



• Total administered assets for the CAP market are $83 billion as of June 30th, 2006. This represents an increase of 10.2% over last year’s total of $75 billion.

• The 10 largest CAP service providers reported a total of $75 billion in assets under administration, representing 90.4% of the industry total.

• There are currently 4.3 million lives in CAPs in Canada, compared with 4 million in 2005. • The bulk of capital accumulation plans(98%)have less than $10 million in assets.

• There were more aggregate deposits than withdrawals this year, with reported deposits totalling $9.8 billion versus $6.5 billion in reported withdrawals. Total net investment was $3.3 billion.



A couple of product offerings that are making some headway in Canada(and has been in the U.S. market for some time)are lifecycle funds and target-date funds. Essentially they allow plan members to invest in funds that either take into account their specific demographic or the date at which they want to retire.

And while some believe it may be too much to let the plan members invest in funds without looking at them ever again, some believe something is better than nothing. “It seems to me that the best defence against any sort of litigation is to have people who have enough money at retirement. If you can achieve that, then it almost doesn’t matter how you got there,” says Harrison. He adds that anything this is available to make the prospect of inadequate retirement less likely to happen is a good thing.

Again, Iannicelli looks at it from a simplicity point of view but says there are potential pitfalls. There are two major drawbacks to target date funds: “One, a plan sponsor could be endorsing a fund manager for the long-term.” But it’s not realistic that any investment manager could be at the top of their game for such a long period of time.”

“Also, target-date funds only take employees age into account, there’s no allowance for risk.” Still, while the argument can be made for liability issues and member disengagement, “They are more popular, they are good simple solutions and they address the needs of some plan sponsors,” notes Iannicelli.

As for target-date funds, they have they are also increasingly popping up within CAPs. “Lifecycle funds just are one tool available to plan sponsors in developing a solid plan design. Typically, we’re seeing target-date funds implemented more often as a default fund instead of a money market fund or a daily interest account,” says Kyle. “Our sense is that a target-date fund makes a better default fund than a money market or daily interest account, particularly if you include the option to modify the target-date fund to reflect the investment risk tolerance of the individual. We believe it is a prudent approach that over the long term will be a better service to the member.”



It is perhaps easy to theorize that due to less member engagement or fewer conversions to DC plans (or any other host of reasons), the CAP industry did not grow as much as it has in previous years. As of June 30, 2006 the CAP industry rose to $82.6 billion in assets.

That represents a movement upwards of about $7.6 billion from the previous year(see “Top 10,” page 29). The industry total includes DC pension plans, group registered retirement savings plans(GRRSPs), deferred profit sharing plans(DPSPs), and employee profit sharing plans(EPSPs)and is compiled from a survey of about 40 CAP providers in Canada.

The fastest growing company in terms of dollar value was Sun Life Financial with a total of $24.9 billion in assets under management—an increase of nearly $2 billion.

Looking at percentages, Fidelity Investments Canada grew by 26.6% and Manulife Financial coming in a close second with a jump of 21.4%. Rounding out the top five of the “Fastest Growing” in terms of percentages are RBC Asset Management, Morneau Sobeco and Desjardins Financial Security.

Total DC assets grew 9.7% to $35.2 billion, RRSPs were also up 10.8% to nearly $39 billion, DPSPs came in at $6 billion—an increase of 10.3% and EPSPs totalled $2.5 billion from $2.3 billion last year. An increase of 8.7%.

The total number of clients in CAPs grew to 46,649, an increase of less than a third of a per cent over last year.



One of the issues that plagues plan sponsors is how to get their members to enroll in their CAPs. Despite seminars and mailings, it seems plan sponsors still have a tough time getting members into their plans.

One trend that is blossoming in the U.S. is auto-enrollment. It allows plan sponsors to place their members into the company CAP. If they choose not to participate, they can select that option but it is an opt-out provision.

“Auto or mandatory enrollment is certainly better than a strict voluntary enrollment scenario in terms of getting more employees participating in a plan. But auto/mandatory enrollment, by itself, is not a complete answer,” says Manulife’s Sipes. He notes that while participation rates do go up, many plan members often end up staying in the default investment or contribution rates in which they were first placed. Sipes adds that a better approach to auto enrollment would be to link it to an automatic savings increase program to maximize effective retirement savings. We haven’t moved down this path in Canada yet, but we are seeing success with this approach in the US, where they have programs that automatically increase contribution rates at predetermined future dates, to help employees get to an appropriate retirement savings rate,” says Sipes.

Joel Kranc is managing editor of BENEFITS CANADA.

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