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Guideline Could Prompt CAP Abandonment

Characterizing the plan sponsors of capital accumulation plans as fiduciaries could prompt future and current sponsors to abandon these plans, says the Association of Canadian Pension Management (ACPM). In its comments on CAPSA’s Guideline No. 3 for Capital Accumulation Plans (CAPs), it says it is surprised by many of the changes that were made in. While the proposed draft guidelines modernize and update the guidelines from 2004, they also change the balance that exists in the guidelines in a manner that will give many employers pause about starting or continuing CAP plans that are not defined contribution pension plans. In fact, it is concerned that if CAPSA finalizes the draft guidelines in their current form, even the sponsors of DC pension plans might rethink those plans. The 2004 guidelines operationalized the obligations of administrators of DC pension plans and applied them to all CAPs. The draft guidelines go further and characterize the sponsor as a fiduciary. The administrator of a pension plan is subject to a statutory standard of care in the plan's administration and investment; some but not all legislation characterizes the administrator as a fiduciary. In some cases, the courts have considered the administrator’s obligations from a fiduciary perspective. Although pension standards legislation imposes a standard of care that is derived from the law of fiduciaries, “we think that considerable caution should be exercised in characterizing all CAP sponsors as fiduciaries” for several reasons. One is that CAPs are conceptually similar, but their legal foundations differ considerably. Among the pension regulators within CAPSA, their jurisdiction does not extend beyond pension plans, a point that the courts have confirmed. “While guidance is appreciated, CAPSA is not in a position to determine who is or is not a fiduciary, as determining whether a fiduciary relationship exists is a legal test that is the sole purview of the courts,” it says. As well, CAPSA can achieve the same results without characterizing sponsors as fiduciaries. It is conceivable that a sponsor might have all of the duties that the draft guideline describes without being a fiduciary and, instead, be subject to a high standard of care as might be determined by the courts. While the draft asserts that the sponsor is a fiduciary, it nonetheless seems heavily informed by a consumer protection model. Given that the courts determine the fiduciary status, it would be preferable for the draft guidelines to be grounded in a consumer protection model and leave issues of fiduciary duty to the courts.

Plan Unable To Provide Full COLA

New Brunswick's Public Service Pension?Plan ? which provides retirement benefits to about 18,000 former government department and crown corporation employees and their survivors ? cannot afford to pay retired employees a full cost-of-living (COLA) increase on retirement benefits. Instead, it is paying 94 per cent of the full amount for 2023. This marks the first time since its conversion to a privately run shared-risk plan 10 years ago it has not covered the cost-of-living increase entirely. It will increase pensions 5.24 per cent in 2023, instead of the 5.56 per cent it calculated as the full cost of inflation. The shortfall will cost the average retiree in the pension plan about $80 next year. If financial returns and funding levels in the pension fund allow it, the lost amount may be awarded in the future. This will be assessed in next year's actuarial valuation report, it says.

For details on these stories, visit www.bpmmagazine.com

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