Level Chan and Dante Manna

On September 9, 2024, the Canadian Association of Pension Supervisory Authorities (CAPSA) released the long-awaited final revisions to Guideline No. 3 – Guideline for Capital Accumulation Plans (CAPs) and the new Guideline No. 10 – Risk Management for Pension Plans.

Revised CAP Guideline

As we profiled in our prior update on the consultation draft, the draft revised Guideline featured a broadened definition of CAP to include Locked-in Retirement Accounts (LIRAs), Registered Retirement Income Funds (RRIFs), Life Income Funds (LIFs), Pooled Registered Pension Plans (PRPPs), Voluntary Retirement Savings Plans (VRSPs), and Tax-Free Savings Accounts (TFSAs).  The final revised Guideline expanded this definition to additionally include First-Home Savings Accounts (FHSAs).

The revised Guideline categorize CAP sponsors by common plan types – this includes employers sponsoring any of the above plans, who may not previously have been subject to any such Guideline.  To supplement the breakdown in the draft, the final revised Guideline also notes that some common types of plans may be sponsored by financial institutions and trustee boards / pension committees.

While the draft revised Guideline had noted that all CAP sponsors have some level of common law fiduciary responsibility, this was rephrased in the final revised Guideline to reference responsibilities, which may in some instances include fiduciary responsibility.  The list of factors that the draft revised Guideline set out affecting a CAP sponsor’s fiduciary duties was largely removed in the final version.

The final revised CAP Guideline features an enhanced section on a service provider’s responsibilities, including remaining compliant with the Guideline and with applicable laws, clearly communicating to members as to whether the service provider is providing investment advice, and informing the sponsors (and, where appropriate, members) about monetary benefits to the service provider from decisions made by the sponsor or members, beyond the fees disclosed.

Further recommendations for CAP members have also been enunciated, including that they should obtain investment advice from a qualified individual, in addition to using the resources provided by the sponsor.  This reflects the recommendations in the draft revised Guideline that members be provided access to such tools and information.  The final revised Guideline also features a greatly enhanced list of members’ responsibilities, which are recommended to be clearly communicated to members.

Other changes in the draft revised Guideline include setting out recommendations regarding establishing a governance framework, and adding automatic features to the CAP, including default investment options.  Additionally, the final version recommends reasonable advance notice where an automatic feature impacts a member.

New Risk Management Guideline

CAPSA has also simultaneously published its new Risk Management Guideline which consolidates its recommendations on approaches to a number of risks for pension plans under a risk management framework to identify, evaluate, manage and monitor material risks.  Specific risks addressed, which can be supplemented in future updates as risks develop, include:

• cybersecurity;
• use of leverage;
• third-party advisors or service providers;
• investment governance; and
• environmental, social and governance (ESG).

Notable changes since the prior draft Guideline include replacing “risk capacity” (e.g. ability to withstand volatility) with “risk limits” (a threshold not to be crossed), as one of three key considerations recommended to inform the plan sponsor’s overall risk assessment.  Further, the final Guideline now includes no guidance on “target pension arrangements” related risk, although that had been part of an earlier draft.

Implementation

Because of the large volume of revisions to the CAP Guideline, including their enhanced scope, CAPs and their plan sponsors are recommended to review policies and practices regarding governance, plan structure, options, communications, record-keeping, and service provider agreements, as well as any applicable laws, in light of the revised recommendations.  Similarly, pension plans should additionally review and incorporate the Risk Management Guidelines recommendations into their risk management frameworks.  Both guidelines recognize that appropriate measures will be proportional with the risks associated with a plan and the approaches to implement such recommendations will depend on the size and sophistication of the plan.  Some key takeaways include:

• Establish and periodically review a governance and risk management framework with processes and controls that are proportional with the risks associated with the plan;
• Review requirements with service providers to ensure compliance with applicable laws and reasonableness of fees and expenses;
• Document risks and controls and review them on an ongoing basis.

In the release announcement, CAPSA seems to suggest that some pension plans will have no issue incorporating the above-noted guidelines as of the date of release. However, where IT system changes or process changes are needed to support the guidelines, CAPSA recommends they be implemented by January 1, 2026.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Pensions & Benefits Group.

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