CAPSA publishes final version of DC pension plans guideline
On February 7, 2019, the Canadian Association of Pension Supervisory Authorities (CAPSA) published the final version of Guideline No. 8 – Defined Contribution Pension Plans Guideline (the DC Guideline).
Defined Contribution Pension Plans
The draft form of the DC Guideline was published on July 26, 2018, and discussed in the September 2018 News & Views. Morneau Shepell made a submission to CAPSA in respect of the draft DC Guideline.
The DC Guideline, originally published in 2014, sets out regulators’ expectations with respect to the administration of defined contribution (DC) pension plans, and provides administrators with guidance regarding the tools and information to be provided to plan members. Compared to the 2014 version, the new DC Guideline has a greater focus on fee disclosure, providing estimates of final account balances and retirement incomes, options for unlocking as well as the payout phase, and variable benefit accounts.
The final version of the DC Guideline has several changes compared to the draft DC Guideline. In several places, it advises members consider obtaining not only investment advice, but retirement planning advice and financial advice from qualified advisors. While it continues to indicate that administrators should consider the nature, risks and historical performance of investments when selecting investment options, the final version also points out that historical performance will not necessarily be predictive of future performance.
While the DC Guideline continues to state that plan administrator should provide estimates of account balances, it now states that plan administrators should consider providing, at least annually, estimates of the benefit that may result from that value. The draft DC Guideline had stated that administrators should provide estimates of retirement benefits based on future account balances.
The DC Guideline continues to require significant fee disclosure, including with respect to asset-based fees. However, the final version does not include the statement that fee increases could constitute an adverse amendment to the pension plan.
While the DC Guideline does not have the force of law, it sets out regulators’ expectations for the administration of DC pension plans. This version of the DC Guideline indicates a greater focus by regulators on fee disclosure, estimates of future pension benefits, and providing information on the payout phase. Sponsors and administrators of DC pension plans should consider the DC Guidelines, along with other guidelines published by CAPSA, in the design and administration of their pension plans.