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If It Walks Like A Duck, And Talks Like A Duck…

By: Greg R. Hurst

The combination of guidelines for Capital Accumulation Plans and privacy legislation could force employees who provide Structured Group RRSPs to their employees to seek alternatives. Greg Hurst, of Heath Lambert Benefits Consulting, examines the issue.

Sponsors of Structured Group RRSPs will be facing significant challenges in complying with the Joint Forum of Financial Market Regulators’ recently issued Proposed Guidelines for Capital Accumulation Plans (CAPs) and with privacy legislation requirements. Soon, a Structured Group RRSP may no longer be an effective alternative to a Defined Contribution (DC) pension plan.

What is a Structured Group RRSP?

In very basic terms, any Group RRSP program that features employer contributions together with rules prohibiting or restricting withdrawals of funds while a member remains in the employ of the sponsoring company may be considered a ‘Structured Group RRSP.’

It is important to note that, technically, employers cannot make contributions directly to an employee’s RRSP account. Under income tax rules, ‘employer’ RRSP contributions are added to the employee’s earnings and are then remitted by the employer on the employee’s behalf to the employee’s RRSP account.


Since 1990, Group RRSPs have been the fastest growing product segment of the Canadian pension industry. The popularity of these plans is a direct consequence of three factors:

Prior to pension tax reform, the insurance industry was dominant in DC pension services and the trust industry was dominant in Defined Benefit (DB) services, although the latter also provided DC services. Group RRSPs were typically voluntary plans, an adjunct to a DB or DC plan, and offered as a convenience to employees (if offered at all). DC plans at that time typically had very limited investment choices, and Group RRSP investment offerings were dominated by guaranteed funds or certificates.

With pension tax reform, the banking industry, primarily via their (then recently acquired) brokerage arms, charged into the group retirement industry, leading the pack in aggressively selling Group RRSPs. It was here that the concept of Structured Group RRSPs was first introduced. These plans were, and still are, promoted to plan sponsors as alternatives to pension plans that avoid the annoyances of pension regulation and, in particular, lock-in requirements that are unpopular with employees. In addition, brokerage firms were able to offer a much wider array of investment choices – primarily mutual funds – that were not typically available from insurance or trust companies.

Fast forward to 2003 and trust companies have essentially departed from delivering services to capital accumulation plans – Group RRSPs, DC pension plans, and similar arrangements. Insurance companies provide a wide array of investment choices via segregated funds for both Group RRSPs and DC pension plans (and similar arrangements). Structured Group RRSPs have become commonplace alternatives to DC pension plans and are offered by both insurance companies and brokerage firms as well as a couple of mutual fund companies (other mutual fund companies had entered and subsequently exited the group pension marketplace during the 1990s).

Regulatory Conundrums

The concept of employer contributions under a Structured Group RRSP has created a conundrum of epic proportions for pension regulators. The central question is whether the commitment by an employer to make contributions to a retirement arrangement such as a Group RRSP meets the definition of the term ‘pension plan’ contained in pension standards statutes. Pension regulators have considered this question on at least two occasions in the late 1990s; with the outcome that the regulators concerned determined that certain of such plans were indeed non-compliant pension plans.

In the 1997 case of Saint John Shipbuilding Limited (SJSL) v. the Superintendent of Pensions of New Brunswick, the New Brunswick Labour and Employment Board upheld the superintendent’s finding that the SJSL’s structured Group RRSP was a pension plan.1 Similarly, in November 1999, Nova Scotia’s Superintendent of Pensions pronounced that Structured Group RRSPs would be considered pension plans.2

Another conundrum of concern to securities and insurance regulators is the differing consumer regulatory environments between group segregated (insurance company) funds and mutual funds. In respect of group retirement programs, this concern is more centred on RRSP arrangements rather than DC pension plans, as the latter seldom utilize mutual funds for investment.

It is no coincidence that the Joint Forum of Financial Market Regulators (formed by the Canadian Securities Association, the Canadian Association of Pension Supervisory Authorities, and the Canadian Council of Insurance Regulators) first began studying CAPs in the winter of 2000. Pension regulators were becoming acutely aware of a very large compliance problem represented by Structured Group RRSPs and securities regulators were being lobbied by certain mutual fund companies complaining about the competitive advantage afforded to insurance companies as a consequence of the lack of disclosure requirements in respect of segregated fund investments under group insurance contracts.

Implications for Structured Group RRSP Sponsors of the Proposed CAP Guidelines

The Proposed CAP Guidelines carry a number of implications for Structured Group RRSP sponsors. These include: Responsibility – Sections 1.3, 2.1.2 and 2.1.3

The proposed CAP Guidelines lay responsibility squarely on the shoulders of ‘CAP sponsors,’ who are employers or organizations that establish a CAP for their respective employees or members. CAP ‘service providers’ responsibilities are limited to those delegated to them (and “carefully documented”) by the CAP sponsor, so over-riding responsibility remains with the sponsor. The proposed guidelines do not replace any legislative requirements.

This approach parallels existing provisions of pension regulation applicable to registered pension plans, which prescribe that the plan sponsor is the administrator of the plan. However, in relation to Group RRSPs, the plan sponsor does not have any legally defined administrative role. The administrative responsibility for RRSP accounts legally lies with the financial institution offering such accounts. The guidelines, in attempting to also impose the administrative role on plan sponsors in respect of Group RRSPs, will be very problematic to comply with. For this reason, they are likely to add confusion and potential conflicts, rather than clarity, among plan members, sponsors, and service providers.

Definition of Purpose – Section 2.1.1

The first principle in setting up a CAP, under the proposed guidelines, is that the plan sponsor must define the purpose of the CAP, and such purpose must be consistent with what CAP members are told. Plan sponsors must have no doubt that the stated purpose of their Structured Group RRSP may be subject to comparison with the definition of ‘pension plan’ under pension standards legislation that might apply.

Further, regulations that exempt RRSPs from pension standards legislation (such as exist in B.C., Saskatchewan, and New Brunswick) may not represent a “safe harbour” from a conclusion of equivalence between the stated purpose of a Structured Group RRSP and the definition of ‘pension plan.’ Under pension standards legislation, funding arrangements are considered separately from the terms and provisions of a pension plan. The Group RRSP might be considered as the funding arrangement related to the “structure,” or terms and provisions, of the retirement program.

Selecting and Monitoring Investments – Sections 2.2 and 6.2

The imposition upon a CAP sponsor of a role in selection and monitoring of investments may spell the end of brokerage Group RRSP services. Currently, CAP sponsors are not direct parties in brokerage Group RRSP arrangements – their role is generally limited to a contribution remittance function.

The guidelines permit sponsors to delegate investment selection and monitoring functions, but nonetheless sponsors are obligated to monitor the party to whom such functions have been delegated. The logistics of monitoring investments or advisors in a brokerage context may be exceedingly difficult to accomplish. There are no cross-group reporting structures and compliance requirements with respect to confidentiality do not currently take into account the role envisioned for sponsors within the guidelines.

Privacy Issues Relating to Structured Group RRSPs

Privacy legislation may also prove to be a barrier for both brokerage and institutional providers of Structured Group RRSP services. As pointed out earlier in this article, in respect of Group RRSPs, plan sponsors do not have a legally defined administrative role. To the extent that the role of a plan sponsor is defined, it is as agent of the plan member for purposes of remitting contributions to the Group RRSP.

Under federal privacy legislation to take effect January 1, 2004, a plan sponsor will not have an automatic right to information concerning individual employees’ accounts as such information would likely have little bearing on the sponsor’s ability to act as the agent of the employee. Structured Group RRSP rules relating to withdrawals while employed may be difficult, even impossible, to administer if a member withdraws consent for the service provider to share information with the plan sponsor. At the very least, privacy will be an area fraught with pitfalls for service providers upon whom responsibility for privacy in respect of RRSPs will unavoidably rest.

DC pension plan sponsors will not face the same dilemma. Their role as administrator places responsibility for privacy rules directly upon them, rather than the service providers they retain in relation to their plan.

In the CAP Guidelines, the Joint Forum has put its regulatory ducks in a row. In many instances, it is likely to be revealed that DC pension plans and Structured Group RRSPs are ‘birds of a feather,’ and that the latter will have to be brought into compliance with pension standards legislation.

Greg Hurst is manager, pensions, of Heath Lambert Benefits Consulting.

1. Shortly after the board’s ruling, the New Brunswick government amended the regulation to its Pension Benefits Act to exclude RRSPs from the definition of ‘pension plan.’ B.C. and Saskatchewan have similar exclusions in their regulations. Such exclusions seem sufficient to allow those pension regulators to deny any jurisdiction in respect of Group RRSPs. However, to the extent that an employer’s promise to fund a retirement benefit via an RRSP account might be separable from the RRSP account itself, such promise itself may continue to meet the statutory definition of ‘pension plan’ in pension standards legislation.

2. This pronouncement was later “clarified,” after a loud pension industry outcry, to apply only to plans that had features similar to a particular case that was not identified.

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