ACPM urges Ontario to drop expected rate of return disclosure for variable life benefits
March 05, 2025
The Association of Canadian Pension Management (ACPM) has told Ontario’s provincial government that plan sponsors should not have to disclose an expected rate of return on contributions made to a variable life benefits (VLB) fund.
The hurdle rate is used as the benchmark rate against which the fund’s expected rate of return is measured and against which the member’s monthly payment is adjusted. It is possible for a VLB to offer more than one hurdle rate to choose from. A member who chooses a lower hurdle rate is more likely to have their payments increase over time whereas choosing a higher hurdle rate is likely to result in declining payments over time.
In a submission to the Ministry of Finance, which consulted stakeholders on regulations respecting VLBs, the ACPM said that it understood the rationale for an expected rate of return disclosure, especially in funds with multiple hurdle rates.
However, the industry group said that the requirement would introduce additional complexity and administrative cost to the VLB regime and may even give retirees the mistaken impression that a certain rate of return was guaranteed. Instead, the ACPM said that VLB administrators could use illustrations to show the impact of different hurdle rates on the pattern of retirement.
Other key comments in the ACPM submission include:
- A suggestion that the name of VLBs should be changed to better reflect the nature of the benefit — to provide lifetime incomes to participants in the pool, albeit with adjustments to reflect investment and mortality experience.
- In order for mortality pooling to be successful, only the larger defined contribution plans will be in a position to offer VLBs.
- Given the significant advantages of a VLB and the fact that only the very largest defined contribution plans might have the scale and resources to directly offer a VLB option, the likely path for most Ontarians without a defined benefit pension to this new pension option is a pooled registered pension plan.
Click on more information below to read the submission:
