Joint Joint Forum of Forum of Financia Financia l Market l Market Regulato Regulato rs rs Forum Forum conjoint conjoint des des autorités autorités de de réglementa réglementa tion du tion du marché marché Guidelines for Capital Accumulation Plans Nurez H. Jiwani Chair, Capital Accumulation Plans Committee Joint Forum of Financial Market Regulators Canadian Institute Of Actuaries General Meeting Montreal, Quebec November 17-18, 2004 – G3-PD
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Joint Joint Forum Forum
of of FinanciaFinancial Market l Market RegulatRegulat
orsors
Forum Forum conjoint conjoint
des des autorités autorités
de de réglementaréglementa
tion du tion du marché marché
financierfinancier
Guidelines for
Capital Accumulation Plans
Nurez H. JiwaniChair, Capital Accumulation Plans CommitteeJoint Forum of Financial Market Regulators
Canadian Institute Of Actuaries General MeetingMontreal, QuebecNovember 17-18, 2004 – G3-PD
Joint Joint Forum Forum
of of FinanciaFinancial Market l Market RegulatRegulat
orsors
Forum Forum conjoint conjoint
des des autorités autorités
de de réglementaréglementa
tion du tion du marché marché
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Topics to be covered:
1. Highlights of the guidelines
2. Industry Reaction
3. Implementation of the guidelines
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1. Highlights of the guidelines
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Capital accumulation plan (CAP)
Tax assisted investment or savings plan
Permits members to make investment decisions
Offers two or more investment options
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Examples of CAPs
Defined contribution pension plans
Group registered retirement savings plans
Deferred profit sharing plans
Group registered education savings plans
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CAP sponsors, service providers and members
CAP sponsors Employers, trade unions,
associations that establish CAPs
Service providers Any provider of services or advice
required by CAP sponsors in the design,establishment and operation of CAPs
CAP members Individuals who have assets in
CAPs
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Purpose of guidelines Outline and clarify rights and
responsibilities of CAP sponsors, service providers and members
Ensure that CAP members are provided the information and assistance they need to make informed investment decisions in CAPs
Achieve similarly regulatory result for CAP products and services regardless of the applicable regulatory (pensions, insurance or securities) regime
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Implications for CAP sponsors
CAP sponsor responsible for: Setting up the plan Providing investment
information and decision-making tools to CAP members
Introducing the plan to members Providing on-going
communication to plan members Maintaining the plan Ensuring termination of CAP or
CAP member in accordance with the terms of the plan
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Delegation
CAP sponsor may delegate their responsibilities within a CAP to a service provider
Where CAP sponsor delegates responsibilities, responsibilities of CAP sponsor and service provider should be carefully documented
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Implications for service providers
To the extent that the responsibilities of the CAP sponsor are delegated to a service provider, the service provider is responsible for following the guidelines
Service providers engaged by the CAP sponsor should have the appropriate level of knowledge and skill to: Perform the tasks delegated to them Provide any advice within their area of
expertise requested by the CAP sponsor
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Implications for CAP members
Responsible for making investment decisions within the plan: How much to contribute How much to contribute to
any particular investment option
Whether an investment in a particular option should be moved to another option
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Implications for CAP members (cont.)
Use the information and decision-making tools made available to them in making their decisions
Consider obtaining investment advice from an appropriately qualified individual in addition to using information or tools provided by CAP sponsor
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Purpose
CAP sponsor should define purpose of CAP: Retirement savings Tax efficient compensation Profit sharing Savings for education or
home purchase
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Use of service providers
CAP sponsors should decide whether to use service providers: Does CAP sponsor have the
necessary knowledge and skills to carry out their responsibilities?
If not, service providers should be used
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Selection of service providers
CAP sponsor should establish criteria and use criteria for selecting service providers
Factors to be considered when establishing criteria may include: Professional training Experience Specialization in the type of
service to be provided
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Selection of service providers (cont.)
Cost of services Understanding of employee
benefits, pension legislation, etc.
Consistency of service offered in all geographical areas in which members reside
Quality, level and continuity of services offered
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Selection of investment options
Factors CAP sponsors should consider in selecting investment options include: Purpose of CAP Number of investment
options to be made available Fees associated with the
options CAP sponsor’s ability to
periodically review the options
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Selection of investment options (cont.)
Diversity and demographics of CAP members
Degree of diversification among investment options to be made available
Liquidity of risk associated with the investment options
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Selection of investment funds
Additional factors to consider when selecting investment funds: Attributes of the investment funds
Whether investment fund(s) selected provide CAP members with options that are diversified in styles and objectives
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Compliance of investment funds with applicable
investment rules
If funds offered in a registered pension plan – must comply with investment rules under applicable pension standards legislation
If investment fund is a mutual fund under securities law – must comply with investment rules governing conventional public mutual funds
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Compliance of investment funds with applicable
investment rules(cont.)
If investment fund is an insurance product, must comply with: Investment rules applicable to
individual variable insurance contracts
Investment rules governing public mutual funds; or
Investment rules under applicable pension standards legislation
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Transfers, failure to make investment choice
CAP members should be provided opportunity to transfer among investment options available in the plan at least quarterly
CAP sponsor should establish and provide to member policy that outlines what happens if a CAP member does not make an investment choice
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Investment information
CAP sponsors should provide investment information to members, such as: Glossaries explaining terms
used in investment industry Information about how
investment funds work Information about investing in
different types of securities (e.g. equities, bonds).
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Investment information (cont.)
Information regarding relative level of risk and return associated with different investment options
Product guides Performance reports for any
investment funds offered in the CAP
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Decision-making tools
CAP sponsor should provide CAP members with investment decision-making tools, such as: Asset allocation models Retirement planning tools Calculators and projection
tools Investor profile questionnaires
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Investment Advice
In addition to providing investment information and decision-making tools, CAP sponsor may choose to:
Enter into an arrangement with a service provider
Or Refer members to a service
providerwho can provide member with advice about their investment decisions
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Introduction of the CAP to members
CAP sponsors should provide following information to CAP members when they become eligible to join the plan: Information on purpose, nature
and features of the plan Rights and responsibilities of
CAP members Investment options available Transfer options Description of fees, expenses
and penalties
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Information to be provided on investment funds
Name of investment fund Investment management
companies responsible for day-to-day management
Investment objectives Types of investment fund
may hold Description of risks
associated with investing in a fund
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Information to be provided on investment funds
(cont.)
Where a member can obtain more information about fund’s holdings and other detailed disclosure
Whether fund is considered foreign property for income tax purposes and, if so, summary of the implications of that status
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Ongoing communication to members
Member statement at least annually
Access to other information Report on significant
changes in investment options
Performance reports for investment funds at least annually
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Information to be provided in member statements
Listing of investments by type Investment activity Investments in investment
funds Summary of transactions How to get specific
information on each investment option, fees and expenses, transaction details and transfer options
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Information to be provided in performance reports for
investment funds
Name of fund Name and description of
benchmark for the fund Corresponding returns for
benchmarks One, three, five and 10
year historical performance
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Information to be provided in performance reports for investment funds (cont.)
Whether investment performance is gross or net of investment management fees and fund expenses
Identification of method used to calculate fund performance return and where more detailed explanation could be found
Statement that past performance not necessarily an indication of future performance
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Maintenance of a CAP
CAP sponsor should periodically review: Service providers Investment options Decision-making tools
CAP sponsor should decide what action to take based on review
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Termination
CAP sponsor should terminate CAP or CAP member’s termination in the plan in accordance with the terms of the plan
CAP sponsor should provide information to members regarding options available to the member, actions the member must take, deadlines for taking action, etc.
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2. Industry Reaction
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3. Implementation of the
guidelines
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Implementation strategies Pension sector –
Adoption of guidelines by pension regulators for application to defined contribution pension plans
Securities sector – Proposed registration and
prospectus exemption
Insurance sector – Adoption of guidelines by
Canadian Life and Health Insurance Association (CLHIA)
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Implementation timelines Guidelines released
May 28, 2004
Securities exemption in place Dec. 31, 2004 (target)
CLHIA adoption Dec. 31, 2004
Regulators’ expectations that guidelines will be followed in full Dec. 31, 2005
Evaluation of success of implementation of guidelines 2006
