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 employers that provide a defined contribution pension plan or a pension plan with a defined contribution component. 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
Employers will likely be aware of existing CAPSA guidance related to DC plans, such as Guideline No. 3: Guidelines for Capital Accumulation Plans (CAP Guidelines) and Guideline No. 4: Pension Plan Governance Guidelines and Self-Assessment Questionnaire. Another applicable CAPSA guideline that employers also will likely be aware of, and which we wrote about in November 2011, is Guideline No. 6: Pension Plan Prudent Investment Practices Guideline.
The new Guideline summarizes the existing guidance, and outlines and clarifies the rights and responsibilities of applicable DC plan stakeholders, such as employers, plan sponsors (often the employer), and plan administrators. More notably, the Guideline is also intended to:
- 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.
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.
ADVERSE AMENDMENTS
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 Guidelines highlights that some jurisdictions may require plan administrators to provide appropriate notice of adverse amendments.
The release of this Guideline provides a sound rationale for employers who provide DC plans to assess their pension plan policies and procedures. In particular, employers who are also DC plan administrators should consider whether any practices should be adjusted to align with the additional guidance set out in the Guideline. For example, some of the Guideline's information-related guidance is new or has not been set out explicitly in previous CAPSA guidelines so plan administrators may wish to consider such guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
