SVP at HUB Investment Consulting discusses CAPSA's revised guidelines, highlighting the updates that plan sponsors need to know
The Canadian Association of Pension Supervisory Authorities (CAPSA) published its revised Guideline No. 3 Capital Accumulation Plans in September.
Capital accumulation plans (CAPs) include all employer-sponsored savings plans in which employees are empowered to decide how their savings are invested. This includes many defined contribution (DC) pension plans, as well as group RRSPs, employer stock purchase plans and profit-sharing plans, where employees choose their own investment options.
The new guidelines represent the first revision in 20 years, updating the industry standards for plan administration and participant engagement, including responsibilities of plan sponsors, administrators and service providers. It also clarifies expectations around best practices for CAPs.
For organizations that offer defined contribution plans or other CAPs to help their employees develop retirement readiness and financial wellness, this revision is big news.
Key changes
The original guidelines have been the gold standard since 2004. However, the 2024 revision introduces a wide variety of changes. While the guidelines are not a legal requirement, they do reflect what the regulators currently consider to be best practices and the standard of care in the industry. As a result, plan sponsors should seriously consider following their recommendations.
While it can be overwhelming to review a new set of guidelines, the main additions and changes include:
Governance framework: While the 2004 version did suggest a governance framework for some types of CAPs, the recent version recommends it for all CAPs. The guidance for governance is thorough and includes components on risk management and performance reviews, as well as a communication process for managing complaints, and a code of conduct for negotiating conflicts of interest.
CAP oversight: Plan sponsors should periodically review all components of their plans; from investment options and fees to record maintenance and member education. Organizations may need to engage experts to help them with this oversight, as staying on top of best practices can be a challenge.
Member education: It’s no longer enough to offer information on certain components. Instead, plan sponsors should demonstrate that they have an education strategy that spans each step from enrolment to termination. This information must be clear and understandable to all members. Additionally, the revision acknowledges that plan sponsors may offer financial planning advice in conjunction with the savings vehicle to help members reach their financial targets.
Automatic features: Automatic features have been widely used to increase member participation, encourage higher contributions and even suggest better investment choices. The guideline provides a framework for implementing these features responsibly.
Member communication: In short, member communications should now be aligned with the intended financial outcome of the CAP.
Investment options: Plan sponsors provide investment decision-making tools to assist members in achieving their targets without guaranteeing outcomes. The new guideline recommends that the investment options available to members should be suitable for those members. This includes selecting suitable default options for plan members in line with the plan members’ needs (e.g., target date funds). It further suggests plans not overwhelm members with too many investment options.
Fee and expenses: The revised guideline recommends the clear disclosure of fees and expenses that impact plan members and any related party transactions, with respect to the selection of available investment options.
Member responsibility: CAPSA recognizes that members have a responsibility to understand the plan’s features, to use the information and education provided by the sponsor and to seek help where needed. They should be educated on the importance of maintaining contact details so they do not become unlocated members in the future.
Planning for the future
CAPSA would like plan sponsors to meet the revised standards by January 1, 2026. From a risk management perspective, plan sponsors should review the new guidelines to determine the impact on their plan, consider any changes they may need to make, and document this work. Business leaders should reach out to their advisors or retirement benefits experts to future-proof the savings plan as the landscape continues to evolve.
Joe Connolly is senior vice president at HUB Investment Consulting. He has over 25 years in the investment industry and specializes in pension and investment consulting.
