Updated CAPSA CAP Guideline: A Call for Plan Administrators to Reassess CAP Governance, Communication, Arrangements, and Policies
On September 9, 2024, the Canadian Association of Pension Supervisory Authorities (“CAPSA”) released the much-anticipated final version of the updated guideline for capital accumulation plans (“CAPs”). Guideline No. 3 – Guideline for Capital Accumulation Plans (the “Updated CAP Guideline”).
This Sidebar provides an overview of the Updated CAP Guideline and identifies actions that CAP sponsors will want to consider to ensure alignment with the new regulatory guidance.[1]
Overview
A CAP is a tax-assisted savings or investment plan where members select how to invest their individual accounts from a range of options chosen by the plan administrator. CAPs are generally provided in conjunction with (or following) an employment relationship.
The original Guideline No. 3 – Guidelines for Capital Accumulation Plans was issued by the Joint Forum of Financial Market Regulators (a cross-country organization comprised of representatives from securities, insurance, and pension regulators) in 2004 (the “Original Guidelines”). The purpose of the Original Guidelines was to set standards for the administration of workplace CAP plans: defined contribution pension plans (“DCPPs”), group registered retirement savings plans (“RRSPs”), registered education savings plans (“RESPs”), and deferred profit-sharing plans (“DPSPs”). The overriding theme of the Original Guidelines was the disclosure of information and the delivery of education to members.
The overall structure of the Updated CAP Guideline remains similar to the Original Guidelines published over two decades ago. Both versions are divided into the following sections: the responsibilities of CAP sponsors/administrators, service providers, and CAP members; setting up a CAP; educating members about the CAP; decision-making tools and investment advice for CAP members; ongoing communication to CAP members; maintaining oversight of a CAP; and communication to CAP members on termination of active participation. However, as discussed in further detail below, the content has undergone significant revisions, including more robust disclosure requirements, new obligations relating to governance, and new criteria for selecting and monitoring service providers
Key Changes to the Updated CAP Guideline
Scope. The scope of application of the Updated CAP Guideline has been expanded to expressly include a wider range of plans, including: locked-in retirement accounts (“LIRAs”), registered retirement income funds (“RRIFs”), life income funds (“LIFs”), pooled registered pension plans (“PRPPs”), voluntary retirement savings plans (“VRSPs”), Tax-Free Savings Accounts (“TFSAs”), and First Home Savings Accounts (“FHSAs”).
Governance Framework. One of the most notable updates to the Updated CAP Guideline is the new requirement for CAP administrators to establish a governance framework. The Updated CAP Guideline suggests that a governance framework should include a description of the roles for key stakeholders, communication protocols (including a member complaint process), a code of conduct policy, a conflict-of-interest policy, and a risk management framework. The Updated CAP Guideline provides that a governance framework can be tailored to the size and complexity of a plan.
Criteria for Selecting Service Providers. The Updated CAP Guideline introduces new, detailed criteria to be considered when selecting service providers, including: assessing fees, reputation, conflicts of interest, team stability, data security measures, and information access. These criteria reflect an increased industry focus on the integrity and security of third-party services, especially in light of growing cyber risks.
Investment Selection and Default Investment Options. In CAP arrangements, the administrator selects the investment options made available to members under the CAP.[2] The Updated CAP Guideline provides a more comprehensive list of factors that administrators should consider when choosing investment options, particularly investment funds. One notable change is the recommendation for administrators to evaluate the number of investment options available to plan members to ensure they align with the plan's goals, noting that as the number of options increase the governance burden on the administrator may increase and member decision-making could become more complex. The Updated CAP Guideline also provides new guidance on establishing default investment options, rebranding their role as a “core investment” rather than just a fallback, employed where investment instructions are not provided.
Maintenance and Retention of Records. The updated CAP Guideline largely retains its emphasis on sophisticated record retention policies. However, it now underscores the necessity of stronger controls and processes to safeguard members’ personal data, aligning with recent provincial pension regulatory policies on records retention and protection against growing IT risks.[3]
CAP Member Education. The Updated CAP Guideline continues to highlight the significance of ongoing member education. The updated version introduces a new requirement for an “ongoing member education strategy that is geared towards the purpose and intended outcome of the CAP and designed to improve member outcome and decisions”. Administrators may want to consider implementing a member education policy to meet the new, more explicit, and detailed education and disclosure requirements outlined in the Updated CAP Guideline.
Decision-Making Tools. The Updated CAP Guideline places greater emphasis on equipping members with decision-making tools and significantly expands the criteria to be considered when selecting these tools. The Updated CAP Guideline also includes expanded guidance on specific examples of decision-making tools for members. Notably, the Updated CAP Guideline now suggests providing tools, such as calculators, that show how fees and expenses impact members' individual account balances. Additionally, administrators are encouraged to provide information on how members can find a financial advisor if financial advice is not being offered by the administrator or a service provider.
Ongoing Member Communications. The Original Guidelines required the delivery of annual statements. The Updated CAP Guideline expands the list of information that should be included in annual statements to include, among other things, the member’s personal rate of return. Additionally, the information required in investment performance reports for each investment option has been revised, notably adding a requirement to describe the method used to calculate fund performance, along with directions on where to find a more detailed explanation. The list of information that must be provided to CAP members upon termination of participation has also been expanded.
Maintaining Oversight of a CAP. Finally, the Updated CAP Guideline offers definitive guidance on conducting future periodic reviews of all aspects of the CAP. Specifically, it includes updated lists of considerations for effective reviews of processes, communications, and policies in the following key areas: governance frameworks, fees and expenses, service providers, investment options, member education and decision-making tools, and record maintenance.
Conclusion
CAP plan sponsors will be well served to assess their current administrative and governance processes and policies, service provider arrangements, communications, investment offerings and policies over the coming months to ensure alignment with the revised regulatory standards.
If changes to IT systems or processes are required to support compliance with the Updated CAP Guideline, CAPSA advises that they be completed by January 1, 2026.
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If you have any questions regarding this Sidebar or inquiries on how to ensure alignment with the Updated CAP Guideline, please do not hesitate to call any of us – we’re here to help.
[1] Similar to the Original Guidelines, the Updated CAP Guideline does not delineate between CAP “sponsor” and “administrator” functions. For purposes of this Sidebar, where a function is clearly best understood as an administrator function, we refer to the administrator, not sponsor.
[2] A CAP which does not offer investment choice to members does not meet the definition of a CAP under either the Original Guidelines or the Updated CAP Guideline, and is therefore prima facie exempt from application of the Updated CAP Guideline, notwithstanding that the Updated CAP Guideline addresses non-investment related topics.
[3] Several provincial pension regulators have released IT risk management guidance applicable to registered pension plans. See the Ontario Financial Services Regulatory Authority’s Information Technology (IT) Risk Management guidance (April 1, 2024). See also the British Columbia Financial Services Authority Information Security Guideline for B.C. Pension Plan Administrators [draft for consultation] (July 2024) . See also CAPSA’s recent Guideline for Risk Management for Plan Administrators (September 9, 2024).
This Sidebar client update provides general information and should not be relied upon as legal advice. This publication is copyrighted by Brown Mills Klinck Prezioso LLP and may not be reproduced in whole or in part in any form without the express written consent of Brown Mills Klinck Prezioso LLP. ©
