According to Jean-Daniel Côté, vice-president, capital accumulation plans and retirement, with ACT Conseillers Inc., the main concerns of many capital accumulation plan (CAP) sponsors used to be signing up employees, offering as many investment choices as possible and then letting the rest take care of itself. But that all changed with the introduction of the CAP Guidelines in May 2004.
“My initial thoughts were that this was going to be a game changer, because it created obligations and responsibilities for sponsors of arrangements that were, in large part, chosen to avoid responsibility,” says Côté, then a partner with Morneau Sobeco (now Morneau Shepell).
With the introduction of the guidelines, plan sponsors were suddenly being asked to consider their fiduciary responsibility for elements such as investment options and fees, recordkeeping, member communications, and whether or not they should be working with consultants to co-ordinate all of these aspects.
“All of a sudden, [employers] had to spend money on [meeting obligations]. For those that didn’t have a history of using consultants, this was a shocker,” explains Côté.
Côté—who was hired by Morneau in 2004 to head its newly formed DC consulting group—says that while consulting firms across Canada had previously offered DC services on an ad hoc basis to clients that needed guidance, the demand created by the CAP Guidelines led to the formal establishment of DC consulting groups within many organizations.
Of course, not all plan sponsors took notice of the guidelines. It didn’t help that they weren’t—and still aren’t—enforceable by law. “There was a lot of reluctance, including from very large sponsors. They were saying, ‘We’ve asked our lawyers, and they say it’s not a legal requirement, so why do I care?’”
Over time, though, Côté says the majority of sponsors have realized the importance of ensuring that their plans adhere to the guidelines—which, he says, were simply “the formalization of common sense.” With the economy in a state of constant flux over the past few years, Canadians want to understand their investment options and how their choices will affect their future retirement income. The CAP Guidelines have helped to achieve this, as well as improved investor risk tolerance and retirement income projection tools.
But while the guidelines have led to improvements in education and communication—as well as products such as target date funds, which simplify investment options—Côté would like to see further changes that would enable sponsors to make their plans even more user-friendly.
“The best thing for the industry would be some safe harbour rules that would allow sponsors to be more proactive and automate things better. It’s been proven very clearly in the U.S. and other countries that a plan works better on autopilot, rather than having to try to educate and communicate to plan members.”
Neil Faba is associate editor of BenefitsCanada. neil.faba@rci.rogers.com
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