1. OBA: Pensions and Benefits 16th Annual Hot Spots
Administrator Delegation and Fiduciary Obligations
October 15, 2018
Toronto, Ontario, Canada
Mary Picard
Partner
Dentons Canada LLP
Tel: (416)
document #

2. Dear administrator: please consider these issues when you’re employing agents to administer your capital accumulation plans
You have a legal obligation to prudently select and supervise your agents. Be aware of exactly who the agents are.
The investment managers and funds offered to you on the platforms of the big providers are governed by back-room contracts that you’re not a party to.
You will be blamed and probably liable for anything wrong that your agents say to your plan members.
The big providers push their products. Do you want that? Beware of what happens when your employees terminate employment and are rolled into your agent’s plan.
Your agent wants to DB-ify your capital accumulation plan. Pay attention to what’s happening with the issue of account balance projections & retirement income illustrations.

3. Dear administrator: Your legal obligation is real.
Be aware of your contractual rights and other recourse against investment managers on the “platform” of your big provider.
Where does the legal obligation come from?
common law: it’s well established that employers should act in the best interests of employees in the provision of benefit plans generally
CAPSA guidelines, which apply to defined contribution registered pension plans
Joint Forum of Financial Market Regulators guideline, which applies to Group RRSPs, DPSPs, NREGs and TFSAs
Could your obligation be avoided by making it clear to employees in their employment contract that no such obligation is assumed by you, the employer?
Could your liability for actions by your “agent” be limited by making it clear to employees that your role is limited solely to making the plan available, at the risk of the employees?
Will you have a typical “on platform funds” arrangement with a big provider such as Sun Life, Manulife or Great West Life? The investment managers won’t be making any contractual promises directly to you. Seek appropriate covenants and protections regarding investment fund issues in the contract with your big provider.
Will you offer “off platform funds”? Beware of the big providers’ reluctance to assume responsibility for key issues such as unitization and reporting.

4. Dear administrator:
You will be blamed, and possibly liable, for damages suffered by employees, if the provider (your agent) says something wrong or inappropriate.
Providers are not charities. They want to sell to your employees. They want to keep your employees’ money for as long as the employees are alive.
All three of the big providers state in their proposed contracts that:
they have the unilateral, unfettered right to send communications to your plan members
they do not have to get your prior approval of the wording
they won’t give you advance notice of the fact they’re communicating
Be aware of what they’re communicating to your plan members, even after the fact; better late than never to be aware of & correct what you don’t like.
Danger areas where the providers accidentally mess up in communicating to your plan members: human rights & business & other sensitivities … + being just plain wrong in the communications.
Watch out for wording in the contract with your agent that gives them permission to pitch other financial products to your plan members (life insurance, estate planning, etc.). As the employer with a fiduciary obligation that has selected the agent, you will be blamed later if the employees complain about those sales pitches and products.
Review carefully, at the outset and annually, the termination option packages sent to your terminating employees. Your agent may not be clear or sufficiently emphatic about the fact that your terminating employees should consider transferring their accounts to financial institutions of their choosing. AND the wording in your agent’s material may leave the impression that fees in the independent product (the “default”) are as good as the fees in your plan. AND that you have a continuing role…

5. Dear administrator: Old world: New world:
Account balance projections & retirement income illustrations are happening. And they pose great danger to you.
Old world:
The provider makes “tools” available so that employees can take action to press buttons, input information and actively control the “modelling” to come up with estimates of what their accounts will look like in future. If they don’t make a decision to use those “tools”, they aren’t given any estimates.
New world:
The provider unilaterally tells the employees how much they estimate the employees will get in future. The provider is giving an estimate with no inputs whatsoever and no action by employees.
The new world is that not a tool that has been provided. It’s a unilateral communication from the provider.
YOU, the administrator who has selected the provider, and who should be monitoring the provider, will be blamed in future when (not if) that estimate is wildly different from reality.

6. New world example: Manulife
John Brown
The Current value of your account is $10, If you continue your average monthly contributions until you retire at age 65, your estimated income during your retirement will be $39,500* each year.
*Your estimated income at retirement is expressed in today's dollars. It is an estimate of how much your future annual income would be worth today.
Your estimated annual retirement income is an illustration only, not a guarantee of what you will have when you reach retirement age. Your actual retirement income may be higher or lower, depending on the performance of your investments. Neither Manulife, nor any of its agents, employees, or representatives are providing legal, tax, or investment advice. All contributions are subject to plan and legislative limits.

7. CAPSA wants you to DB-ify your capital accumulation plan.
Guideline No. 8: Defined Contribution Pension Plans
first published in March 2014
in July 2018 CAPSA issued a revised draft Guideline No. 8 and sought comments
comment period is now closed
CAPSA has posted on its website the comments about the draft revised guideline that were submitted by:
The Association of Canadian Pension Management
BFL CANADA Consulting Services Inc.
Bob Tangney
The Canadian Bar Association
Canadian Life and Health Insurance Association
Eckler Ltd
Mercer
Morneau Shepell
Vanguard Investments Canada
Willis Towers Watson

8. Proposed new section 3.3 of CAPSA Guideline No. 8
“3.3 Information and Tools Regarding Estimates of Account Balances and/or Benefits
Plan administrators should provide members with information and tools to help them understand and estimate their plan benefits on retirement. These tools should take into account applicable assumptions needed to project benefits, including the impact of fees.
Plan administrators should provide members, at least annually, with an estimate of the value of the member’s account at retirement, as well as an estimate of the benefits that may result from the value.
Assumptions used to estimate the value at retirement or an expected periodic (e.g. monthly) income stream should be reasonable. Plan administrators should demonstrate prudence in establishing appropriate assumptions. Plan administrators could use assumptions which are either internally or externally developed. The assumptions should be appropriate for the characteristics of the plan and plan members.
Plan administrators should disclose the assumptions used to arrive at an estimated future benefit and/or value, including the assumed level of fees, and should clearly state how the estimate can be affected if different assumptions are used.
Plan administrators should clearly indicate that actual future account values and benefits will likely differ from estimates.
Plan administrators should describe to members the purpose of the pension plan. Members should be informed that other sources of income or savings may be necessary to achieve their retirement income goals.”

9. CAPSA proposes to state in Guideline No
CAPSA proposes to state in Guideline No. 8 that you SHOULD provide account balance projections and estimates of “benefits income”.
Morneau said in its submission (posted on CAPSA website):
“The Draft Guideline suggests that administrators should provide members with information and tools to allow members to estimate the value of their account on retirement, and the expected periodic stream thereafter. By contrast, the existing Guideline only requires that administrators consider providing such information. In addition, the administrators themselves should now provide estimates of these two amounts, disclosing the assumptions upon which they rely. Administrators should state how these estimates can be affected, if different assumptions are used, clearly indicating that the estimates will likely not reflect the actual amounts.”
“Given the increased risk that such estimation poses to administrators, we would recommend that the guidance revert to the existing “should consider” standard, at least until governing legislation is amended to provide safe harbours.”

10. : * * * * CBA said in its submission:
“Section 3.3 also currently says that plan administrators should consider providing members periodically with an estimate or a general illustration of the accumulated value of the member’s account at retirement, as well as an estimate or example of the benefit that may result from the accumulated value. The proposed revisions adopt a prescriptive approach by removing the discretion of the plan administrator and state that plan administrators should provide members at least annually with an estimate of the accumulated value of the member’s account at retirement, as well as an estimate of the benefit that may result from the accumulated value. We recommend that the language remain as contained in the current version.”
“We recommend that the guidance in Section 3.3 on assumptions used to estimate the value of a DC account at retirement or an expected periodic income stream should indicate that such guidance applies only if the plan administrator chooses to provide members an estimate of the value of a DC account at retirement or an expected periodic income stream.”
“We recommend that it should be made explicit in the Guideline that it is the responsibility of each plan member to plan for their retirement, including projecting their income at retirement, and that each plan member should seek whatever financial advice they deem appropriate, including from financial advisors. It should also be made explicit that the plan sponsor and plan administrator’s role is not to give such financial advice, and each member should consider seeking financial advice from a third party in respect of retirement planning.”
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