© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the February 2005 edition of BENEFITS CANADA magazine.
 
The Joint Forum’s Guidelines for Capital Accumulation Plans mean sponsors of group RRSPs should be looking at their plans, too.
 

When the Joint Forum of Financial Market Regulators released the Guidelines for Capital Accumulation Plans(CAPs)in May 2004, sponsors of group registered retirement savings plans(RRSPs)might not immediately have realized these guidelines applied to their plans, too. Long popular as one of the easiest retirement savings plans to set up and administer, group RRSPs are spared some of the legislative and regulatory complexities of defined contribution(DC)pension plans.

In some respects, their consideration under the CAP guidelines marks a coming of age for group RRSPs—a recognition of their increasing importance in Canadians’ retirement planning as well as their continuing popularity. Over the past 10 years, assets invested in group RRSPs have more than doubled, according to annual survey information compiled in 2003 by BENEFITS CANADA, and recent sales reports suggest this trend shows no signs of diminishing. According to a LIMRA sales survey(third quarter, year-to-date 2004), the annualized group RRSP deposits have increased by 25% from $82 million in 2003 to $102 million in 2004, for the companies reporting.

The requirements set out under the CAP guidelines mean plan sponsors who establish new plans—as well as those with existing ones who may have taken a hands-off approach to administering them— face a new reality. From documenting the group RRSP’s purpose at inception to regularly reviewing funds, service providers and performance, plan sponsors will be required to play a more clearly defined role. They have until Dec. 31, 2005, to develop an understanding of their responsibilities under the terms of the guidelines and to ensure their plans are compliant.

A PLAN IS A PLAN IS A PLAN
The CAP guidelines help to eliminate grey areas often associated with plan sponsors’ responsibilities and governance requirements. Regardless of what type of plan a sponsor offers, the guidelines establish defined practices and clearly specify sponsor accountability.

Defining a ‘capital accumulation plan’ sets the foundation(according to the guidelines). A plan is defined as: “a tax assisted investment or savings plan that permits the members to make investment decisions among two or more options offered within the plan…Furthermore, an employer, trade union, association or any combination of these entities may establish a CAP for the benefit of its employees or members.”

Clearly, group RRSPs fit this profile, since most offer some choice of investments within their tax-effective structure. Whether contributions are mandated or voluntary, employer-matched or stand-alone, the flexibility of plan structure doesn’t make the arrangement any less a plan under the CAP guidelines.

While the guidelines don’t add any new regulations to group RRSPs, they do specify expectations since they “outline and clarify the rights and responsibilities of CAP sponsors, service providers and CAP members…”

Detailing these responsibilities makes it less likely the continuing actions required of each party can be easily overlooked. The majority of employers, trade unions and/or associations likely feel a sense of responsibility toward their group RRSPs. But in the absence of clearly stated expectations—like these guidelines—sponsors have been hard-pressed to know precisely how to treat group RRSPs. Clear directives, applied consistently to all programs, now replace that uncertainty.

DEFINE AND DOCUMENT
Plan sponsors will need to address a number of new questions as a result of the CAP guidelines. For example, has the plan sponsor defined and documented why the group RRSP was established? Even a plan established solely to let employees save their own money must specify its intent— in writing—and participants must be made to understand the plan’s purpose. Any change to the plan must be documented and communicated as well.

A sponsor without the in-house knowledge and skills to manage and administer the plan must choose a partner wisely as that sponsor is accountable for supplier selection criteria. Another question to consider is: has the supplier for the group RRSP been carefully selected by the plan sponsor to meet the needs of the employees?

Under the terms of the guidelines, a service provider should be screened for professional training, experience and demonstrated ability to provide services the plan requires. Cost of the service is a consideration, as are specialization in the type of service being offered and understanding of employee benefits. Quality and continuity of service must be taken into account along with the consistency of service provided by geographic location.

A sponsor who hasn’t yet documented the plan’s purpose or the reasons for selecting a key supplier doesn’t necessarily have to move or change a plan; however, they must begin to develop plan objectives—and meet with any current service provider(s)to make sure the those objectives line up effectively with the provider’s capabilities.

Investment options also have to be reviewed at initial selection, then on a regular basis. Are a sufficient variety of funds available? Do they support the plan’s objectives appropriately?

Providing investment information designed to help participants make informed choices falls into the sponsor’s accountability, too. From defining investment terms to explaining levels of risk and performance measurement, an information program must be developed and delivered so participants can understand and make use of the support the program sets out to provide.

As part of the plan’s continuing maintenance, the sponsor must review(at least annually)any service provider contracted to support the group RRSP. Similarly, regular reviews of investment options, records, and decision- making tools must be scheduled to monitor the plan’s continuing effectiveness. With the plan’s purpose and objectives defined, it becomes possible for the sponsor to document results and change a provider or an approach where objectives aren’t being fully realized.

GETTING THE HOUSE IN ORDER
To some plan sponsors, the range of accountabilities set out in the guidelines may come as a bit of a shock. If the sponsor’s group RRSP was established based on the premise that maintaining it promised to be easy and required limited involvement on the sponsor’s part, a first look at these guidelines might seem daunting.

Concerned plan sponsors will find most carriers and service providers are willing to provide information and assistance to help them navigate the guidelines. In fact, most suppliers already have structures and programs in place to support continuing education, reporting and reviews. As noted earlier, many sponsors are already required to meet similar criteria under the terms of more complex pension plans. The process for satisfying CAP guidelines for group RRSPs is parallel— and generally simpler.

While group RRSPs are still easier to set up and administer than DC plans, the CAP guidelines establish a minimum level of rigour and documentation that works to protect plan sponsors and plan participants alike.

Group RRSPs still present an attractive option for plan sponsors to consider. Participants generally understand them better than comparable pension plans and they offer flexibility to plan participants and plan sponsors alike. The CAP guidelines won’t adversely affect these popular retirement savings vehicles. If anything, when established and evaluated on a level playing field, the value of group RRSPs should appreciate.

Plan sponsors have until Dec. 31, 2005, to bring their processes into line with the guidelines. Representatives of the pensions and retirement savings industry—including carriers, service providers and fund managers—have helped to develop these CAP guidelines. These same individuals will be well able to help plan sponsors meet, and exceed, the requirements specified in the guidelines.

Bill Sipes is marketing director for Manulife Financial’s Canadian pension operations in Waterloo, Ont. Bill_Sipes@Manulife.com

 

Copyright © 2019 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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