CAPSA issues new guidelines for Capital Accumulation Plans: A blueprint for success in a changing landscape 

On September 9, 2024, the Canadian Association of Pension Supervisory Authorities (CAPSA) published the new Guideline for Capital Accumulation Plans (CAPs), Guideline No.3. This marks the first major revision since 2004, reflecting the significant evolution that has taken place in Canadian defined contribution plans and group retirement savings programs over the past 20 years.

The updated guidelines introduce new expectations and a framework for CAP governance, focused on creating clear accountability, mitigating risks and futureproofing governance processes.

The guidelines clearly outline CAPSA’s expectations that CAP sponsors create a governance framework and provide principles about what the framework might look like, however, there is no “one-size fits all” approach. How CAP sponsors act in response to this guidance will vary based on the objectives of the CAP sponsor and the size and complexity of their CAP. 

CAP sponsors must now decide what they need to do to align with regulatory expectations, weighing what can be done practically with what actions could enhance their governance framework.

Complementing the updated CAP guidelines is the newly released Guideline for Risk Management, Guideline No. 10. This guideline lays out key principles for effectively managing risks associated with pension plans. While this document is directed to pension plans specifically, the principles outlined, particularly those related to cyber-security, third-party risk and environmental, social, and governance (ESG) issues, are relevant to CAP sponsors. It is worth noting that when it comes to ESG issues, there is an expectation that pension plan sponsors design their plan governance, risk management and investment decision-making practices to identify and respond not only to material ESG risks but also to ESG opportunities.

Guideline No. 10 incorporates a four-step process for identifying and managing material pension risk. This includes a recommendation for the development of a written risk management statement that incorporates the risk appetite, risk tolerance and risk limits for material risks.

Similar to the CAP guidelines, the application of the risk management guidelines will vary depending on the specific circumstances and investment beliefs of each pension plan. Therefore, pension plan sponsors should consider how to review and incorporate their current risk management processes in the context of their governance framework.

Recognizing the critical role of member engagement, the guidelines lay out an expectation to have a clear member education strategy. Within this strategy, CAP sponsors should provide accessible information about plan features, fees and investment options.

In addition, the guidelines stress that CAP sponsors are responsible for review and oversight of member-borne fees and service providers, and to provide transparency to members. Automatic plan design features are also highlighted as a way to increase participation and improve member outcomes.

The updated CAP guidelines present a blueprint for CAP sponsors to follow to enhance their offerings. They provide insight into the priorities of regulators and serve as a platform for considering which governance activities matter most for a specific CAP.

The next step for CAP sponsors is to review the guidelines and seek assistance as necessary to ensure their CAP is well-governed, member-centric and aligned with regulatory expectations. Mercer is committed to keeping you informed and helping you however we can. Contact a Mercer consultant to determine the best path forward for your plan.