What are CAP Guidelines?

Apr 21, 2014

Capital Accumulation Plans (CAP) are defined contribution (DC) plans, which include, but are not limited to, savings plans such as registered pension plans, group registered retirement savings plans (most common), registered education savings plans and deferred profit sharing plans.  The guidelines, which were developed in 2004 by the Joint Forum of Financial Market Regulators, were predominately written to provide interested stakeholders with uniform rules and responsibilities relevant to retirement savings.

When a CAP is set up, there are four stakeholders: the employer (Plan Sponsor), the employee (Plan Member) the service provider and the plan’s advisor. To assist plan sponsors in establishing a CAP compliant savings plan, a checklist has been developed by the regulators to assess the plan on an ongoing basis. They include:

  • Stating the purpose of the plan
  • Acknowledging the roles and responsibilities of the employer, the advisor, the service provider and the employee in the process
  • Listing the investment funds available to members
  • Determining the default fund selection when members do not make a selection
  • Determining the qualitative and quantitative process of evaluating  fund managers performance through a written Statement of Investment Policy Guidelines (SIPG)

Unlike our American neighbours, there is no legal requirement for Canadian organizations to follow the CAP guidelines and therefore there is no ‘safe harbour’ for those that do. However, the lack of a legal basis for the CAP guidelines is not preventing Canadian courts from using them to determine or assess a plan sponsor’s liability in cases of member litigation.  For now, the regulators have chosen a path of setting guidelines and not regulation. That could change.

Life and health benefits are reviewed at least once a year because they renew. Retirement programs, however, are often not reviewed on an annual basis.  By following and adhering to the CAP guidelines, it will bring clarity, confidence and peace of mind to all the stakeholders.

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