On March 28, 2014, the Canadian Association of Pension Supervisory Authorities released Guideline No. 8: Defined Contribution Pension Plans Guideline. The Guideline supplements existing CAPSA guidance related to DC plans and provides additional guidance to plan administrators, plan sponsors, employers, service providers, fund holders and members with respect to defined contribution pension plans. Although the Guideline is not a legal requirement, it reflects the expectations of regulators regarding the operation of DC plans. For plan administrators, in particular, the Guideline can assist in meeting their fiduciary duties.
THE NEW GUIDELINE
The purposes of the Guideline are four-fold:
- Summarize existing CAPSA guidance related to DC plans, such as Guideline No. 3: Guidelines for Capital Accumulation Plans (CAP Guidelines), Guideline No. 4: Pension Plan Governance Guidelines and Self-Assessment Questionnaire, and Guideline No. 6: Pension Plan Prudent Investment Practices Guideline, which we wrote about in November 2011.
- Outline and clarify rights and responsibilities of plan administrators, plan sponsors, employers, service providers, fund holders and members with respect to DC plans.
- Provide DC plan administrators with guidance regarding tools and information to provide to members while they are choosing among retirement options.
- Clarify what constitutes an “adverse amendment” with respect to DC plans.
The more notable aspects of the Guideline are the guidance that it provides to plan administrators with respect to information for members and “adverse amendments”.
INFORMATION FOR MEMBERS
The Guideline provides plan administrators additional guidance (which goes beyond the guidance provided in the CAP Guidelines) on providing information to (i) members during the accumulation phase and (ii) members who are approaching the payout phase. During the accumulation phase, the Guideline encourages plan administrators to consider providing information regarding investment choices, information regarding contributions, and information regarding projected account balance at retirement. Of note, the Guideline provides that plan administrators should consider providing members with information and tools to help them understand and estimate their plan benefits on retirement.
During the period where members are approaching the payout phase, the Guideline outlines a number of considerations, including that it is expected that plan administrators will provide information regarding all of the regulated retirement products available to members. The Guideline refers to a separate document that was released by CAPSA on the same day as the Guideline: CAPSA Reference Document: Registered Retirement Products for DC Plan Members. The Reference Document provides further details on the information and general features regarding retirement products that plan administrators may provide to members.
The Guideline also comments on ongoing communication during the payout phase, clarifying that plan administrators are responsible for ongoing communication during that phase only where the payout product is a variable benefit.
The Guideline provides that adverse amendments are amendments which adversely affect the prospective benefits, rights or obligations of members or other persons (e.g. beneficiaries) entitled to payments from the fund. Some examples of changes which may be considered to be adverse amendments are reduction of employer contributions, increase in employee contributions, changes in expense allocation and changes to possible member retirement age.
The Guideline highlights that some jurisdictions may require plan administrators to provide appropriate notice of adverse amendments.
All that are involved in operating DC plans, and plan administrators in particular, should consider the Guideline and assess whether any changes should be made. For example, plan administrators may wish to consider the Guideline’s information-related guidance, some of which is new or has not been set out explicitly in previous CAPSA guidelines.