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May 16, 2022

CAPS CAN ADD AUTO-FEATURES

Capital accumulation pension plan (CAP) sponsors may consider adding automatic features to their plans, says the Canadian Association Of Pension Supervisory Authorities’ proposed ‘Guideline No. 3 – Guidelines for Capital Accumulation Plans (CAPs).’ These guidelines update and replace the ‘2004 Guidelines For Capital Accumulation Plans’ issued by the Joint Forum of Financial Market Regulators. It says depending on the purpose of the CAP, there may be benefits to the inclusion of automatic features in a CAP. These include increased participation in a plan, early and greater contributions, and appropriate investment selection; which may lead to greater positive member outcomes. These automatic features may be combined and include automatic enrolment; automatic escalation of CAP member contributions; automatic rebalancing of investments; electronic communication; default investment options; and default elections at termination of employment and retirement. The automatic features within the CAP should be disclosed to the members upon enrolment in, or amendment to, the plan with the ability to opt-out if applicable. These guidelines are also relevant where CAP sponsors have chosen to offer retirement income options as part of, or as an extension, to their CAPs. Many of the administration, investment, and communication principles will apply equally in the accumulation and decumulation phases. Comments can be provided to capsa-acor@fsrao.ca by August 15.

May 16, 2022

INVESTMENT RISK GUIDANCE NEEDS FLEXIBILITY

Pension investment risk management is a complex topic that has significant breadth of issues and significant disparity in successful approaches, says the Pension Investment Association of Canada (PIAC). In its comments on OSFI’s pension investment risk management consultation, it says the approach to investment risk management varies across its membership and the approaches vary generally based on the size of the plan, funding levels, maturity, asset-liability mismatch, cash flow, and investment portfolio complexity. “The most important feedback we can provide,” it says, “is that given the varying degrees of inherent risk in pension plans that the ultimate guidance from OSFI and other regulators needs to be principles based and flexible enough to be cost effectively implemented by smaller plans ($40 billion) and all those in between.” Among the principles it supports is that pension plans should be required to articulate their risk appetite in writing and that it is approved by the governing fiduciaries. There should be flexibility in terms of the methodology and metrics that can be utilized. As well, established risk limits must be in place. However, there should not be any requirement on the type of metric or measurement methodology. It is also important that the risk limits are not hard limits that cannot be breached. Their purpose should be to raise awareness, prompt consideration, and enable understanding of the risks being taken and why.

May 16, 2022

FSRA REVISES AIR

Ontario’s Financial Services Regulatory Authority (FSRA) is currently preparing revisions to the annual information return (AIR) to eliminate some questions that defined contribution pension plans must complete on the AIR. An Aon ‘Radar’ says FSRA’s latest ‘Pension Update’ says it intends to implement these revisions in early June, for use ahead of the June 30 AIR filing deadlines for most DC plans. It has also made an online DC wind-up report for filing on the Pension Services Portal (PSP). This tool provides a streamlined approval process and FSRA encourages plan administrators to file DC wind up reports through the PSP as soon as possible after the wind-up date. For defined benefit/defined contribution plans, there is no need to delay filing the online DC wind-up report for the DC portion of the plan. This portion can be addressed with the online filing before the DB wind-up report is filed with FSRA.

May 16, 2022

FRONTIER MARKETS VITAL FOR DIVERSIFICATION

Research with institutional investors and wealth managers across Europe identifies frontier markets as vital for diversification. The study by Dragon Capital reveals more than half (53 per cent) strongly agree and 46 per cent slightly agree that frontier markets provide attractive diversification benefits from emerging and developed markets. The majority of investors (85 per cent) also agree that frontier markets offer some of the best opportunities to find hidden gems in the investment management world. More than two-thirds (67 per cent) agreed, 18 per cent strongly agreed.

May 16, 2022

PARTNERSHIP DEVELOPS BUSINESS PARK

Federated Hermes, Inc., on behalf of the BT Pension Scheme (BTPS), and the Canada Pension Plan Investment Board (CPP Investments) have formed a partnership to own and develop Silverstone Park, an engineering and technology business park. MEPC, the wholly owned subsidiary of Federated Hermes, will continue in its role as development and asset manager. CPP Investments will commit C$228M to the joint venture and hold a 50 per cent interest, with further investment planned to support the future development pipeline of the park.

May 16, 2022