Gallagher panel highlights key priorities under new CAPSA framework, citing governance and educating members
While the Canadian Association of Pension Supervisory Authorities’ (CAPSA) newest set of guidelines reflects shifts in plan design, regulatory expectations and best practices for plan sponsors, experts are urging plan sponsors to put the guidelines into practice as soon as possible.
After all, they only have until next January to implement the guidelines into full force.
"The guideline doesn't have the force of law, but it does reflect what regulatory authorities consider to be best practices in terms of capital accumulation plans (CAP) design, governance, and operations,” noted Karen DeBortoli, principal at Buck in a recent webinar, hosted by Gallagher.
“The guideline is very strongly emphasizing the importance of documenting the purpose of the CAP in terms of its extended outcome to members. That feeds through all possible all aspects of the cap, from design, operation, selection of investment options, member education and communications,” she said.
Under the new guideline revisions, plan sponsors bear the heightened responsibility to educate members. While the old guidelines focused on providing information, the new framework pushes for ongoing education, explained Mark Dowdell, national practice leader, defined contribution and investments at Gallagher.
"It holds the plan sponsor to a higher standard of care," he said.
Whereas now, the guidelines clearly state that members “should obtain investment advice or financial planning advice,” he added, emphasizing it’s more of a push to get members to receive independent third-party reviews of what the CAP may do for them in the future.
Consequently, the shift introduces a risk factor for sponsors. Without safe harbor protections like those in the US, plan sponsors could face liability if members claim they were misinformed.
"There’s a lot more responsibility on plan sponsors to make tools available and to act as a conduit for members getting investment and financial planning education,” said DeBortoli.
“With that responsibility comes risk and that is something that plan sponsors are concerned about because the more responsibility they're assuming, the more potential downside risk they're assuming if your education providers don't deliver appropriately,” she added.
Additionally, the biggest change is the shift in expectations for plan sponsors. DeBortoli pointed out that the language in the guidelines has changed from "should consider" to "should do" in several areas.
She also emphasized that regulators are looking for more concrete governance structures because governance is now a focal point and sponsors must clearly define their CAP’s purpose and ensure their governance process aligns with it. That means reviewing policies regularly and proving they’re being followed.
“Factors will influence where on a governance spectrum the CAP falls, in terms of the complexity of its program and its governance program. There's no one-size-fits-all framework and the specific characteristics of both the plan and its sponsor will influence what the CAP's governance process will look like. But there should be one and it should be documented," she said.
While the guidelines don’t specify a timeline, she recommended at least an annual review.
The guidelines also recommend that sponsors consider whether to add features like automatic enrolment, default options and contribution escalation to improve member outcomes and increase member participation.
Along with member engagement and participation, clear, effective communication is more important than ever, said Debbie Patton, associate vice president, investment and retirement at Gallagher, who stressed the need for targeted, data-driven messaging.
"If you can leverage data, that can make it easier for you to create personalized communications," she said. "In my opinion, those personalized communications are where the employee is often going to say, 'Hey, that's me,' and that's more likely to get them to take the appropriate action."
She also emphasized the importance of regular reminders and varied communication channels.
"We don't know where the employees are in their life. We don't know when they're going to connect to a specific message. So don't worry if your communication strategy seems like some messages are being repeated year after year. It's necessary,” she said.
Despite there being 13 responsibilities that a CAP sponsor needs to be communicating to their members, “the very first responsibility is to join the plan,” said Dowdell.
“You think that would be a pretty easy one, but I can't tell how many times I've been talking with plan members where it's a voluntary plan and the employee has not joined the plan for 5 years or 20 years, even before they become a plan member,” he said.
Dowdell explained that while sponsors had flexibility in the past, the new guidance leans toward long-term investment options like target-date or balanced funds.
Fees are also under scrutiny, with a call for sponsors to benchmark them periodically. Dowdell emphasized that this doesn’t just mean finding the cheapest option.
“There's also an emphasis that the analysis should determine the overall value or the cost that's being paid versus just focusing on the lowest cost. With these types of reviews, that's where an independent advisor can assist the sponsor in doing that,” he said.
"With five generations in the workforce today, member outcomes are different for each individual," he added. "For some, it might be retirement planning and others might be paying off student debt or saving for some other type of significant savings goal."
