Capital Accumulation Plan sponsors: RRSP, TFSA and DPSP providers, it’s time to get your ducks in a row

October 30, 2024

On September 9, 2024, following two stakeholder consultations that occurred over the last two years, the Canadian Association of Pension Supervisory Authorities (CAPSA) released long-awaited updates for two guidelines: Guideline No. 3: Guideline for Capital Accumulation Plans and Guideline No. 10: Guideline for Risk Management for Plan Administrators. This is part 1 of a 2 part series that reviews the two recently released CAPSA guidelines, starting with CAPSA Guideline No. 3: Guideline for Capital Accumulation Plans (CAP Guideline).

The final CAP Guideline updated a version introduced 20 years ago, recognizing that significant changes had occurred, including a shift by plan sponsors towards registered retirement savings plans (RRSP), deferred profits sharing plans (DPSP), tax-free savings plans (TFSA) as well as the introduction of new products (First Home Savings Accounts, which are as of the date of writing not yet available as a group policy). One of the biggest changes the final CAP Guideline introduced was the need for governance frameworks which had traditionally only been recommended (or in certain jurisdictions, required) for registered pension plans. Below is a summary of what this means and what CAP sponsors should be implementing or updating if they already have a governance framework in place.

Who is CAPSA?

CAPSA is a quasi-regulatory association of Canadian pension regulators and includes the Canada Revenue Agency (CRA) and Statistics Canada. While the various CAPSA guidelines¹ are not law, they provide the expectations of regulators regardless of what jurisdiction a plan is registered in.

New CAP sponsor responsibilities and governance framework

The final CAP Guideline introduced a number of changes, including expressly stating that a CAP sponsor's responsibilities to members "may" include fiduciary responsibilities. The CAP Guideline also updated the list of responsibilities of a CAP sponsor to include maintaining oversight of the CAP, including performance monitoring and oversight of service providers and investment options, the review of fees and expenses, and of member education materials and decision-making tools.

In addition, the final CAP Guideline introduced a requirement for the CAP sponsor to establish a governance framework for all CAPs to ensure good practices are in place. CAPSA noted that the governance framework should be appropriate for the size, complexity, and other characteristics of both the CAP and the CAP sponsor and should include:

• a description of the roles, responsibilities and accountabilities of any stakeholders or parties involved in the governance of the plan;
• a communication process, including a process for addressing member complaints;
• a code of conduct, including a policy to manage conflicts of interest;
• a risk management framework (as may be applicable to the CAP);
• a framework for the regular review of the performance of service providers, including investment managers (with articulated performance criteria); and
• a process for the regular review of the governance process.

CAP members responsibilities expanded

The final CAP Guideline also includes an expansion of the responsibilities of CAP members. The final CAP Guideline recognizes that CAP members "bear the investment risk inherent in a CAP" and lists the following key responsibilities of a CAP member:

• informing themselves about the CAP's features and terms and their rights and obligations as participants in the CAP;
• making decisions about how much to contribute (where the CAP member can make this choice) and how much to allocate to any particular investment option;
• evaluating the automatic or default features of the CAP (e.g., investment options, contribution rates) and deciding whether to accept application of these features or make other choices;
• using the education materials and tools made available by the CAP sponsor (and service providers); and
• determining, if applicable, how, and how much to withdraw annually for retirement income and deciding which decumulation option(s), if applicable, will best suit their goals.

These changes are important in recognizing that CAP members need to be engaged in ensuring the success of their CAP as CAP sponsors can provide all the tools and options, however, ultimately the CAP member needs to actively participate.

Other changes in the final CAP Guideline

Some other notable changes the final CAP Guideline introduced include:

• Requiring the disclosure of automatic features to CAP members;
• Emphasizing the need for decision-making tools;
• Expanding the list of factors to consider when choosing investment options and investment funds;
• Updating criteria for selecting service providers;
• Ensuring member's personal data is secure; and
• Updating the list of information that should be included in member communication.

Why is it important to follow the CAPSA guidelines?

While there are no penalties for failing to comply with the CAPSA guidelines, there are penalties under pension and income tax legislation for various breaches of the applicable law.²

In addition, there is potential exposure to litigation. The importance of a strong governance framework was recently addressed in a case involving a multi-employer pension plan (MEPP), wherein the BC Court of Appeal confirmed a lower court decision dismissing various claims against trustees for breach of fiduciary duty relating to decisions the trustees had made with respect to the retirement age. The BC Court of Appeal agreed with the lower courts finding that given the trustees had a good governance framework and practice in place, it was inappropriate for the court to interfere.³

What should I do next?

First, confirm whether you have a papered governance framework. If you don't, right now is a good time to start working on one. No matter the size of your company or how many members you have participating in your CAP, having something in writing is the first step toward ensuring the responsibilities of the CAP sponsor, administrators and service providers are clear and can be the key in implementing practices to ensure the smooth administration of a CAP.

If you already have a governance framework, now is a good time to review it to ensure the final CAP Guideline is appropriately reflected. This would also be an opportune time to review service providers and ensure written contracts are in place and that important topics such as fees and expenses, record retentions practices, member communications and education tools are addressed appropriately.

The CAPSA Guidelines are effective as of September 9, 2024, however where process changes are required, plan sponsors have until January 1, 2026, to implement them.

For more information on this topic, including any assistance with implementing a governance framework or updating an existing one, please contact Pamela Chan Ebejer, Scott Sweatman, Barbara Walancik-Hatch or Salim Visram.

[1] CAPSA has 10 guidelines on topics ranging from Pension Plan Governance to Searching for Un-locatable Members of Pension Plans available here: https://www.capsa-acor.org/GuidelinesforIndustry

[2] FSRA released its General Administrative Monetary Penalties (AMP) Guidance (No. GR0012APP) effective March 11, 2024 and has advised it is releasing a separate guidance to address Summary Administrative Monetary Penalties. Other penalties are applicable in other jurisdictions.

[3]Larkin v. Johnson, 2023 BCCA 116, leave to appeal to the SCC dismissed.