Group RRSPs: Do you know your liability?

I just finished reviewing the annual reports for a Group RRSP and Deferred Profit Sharing Plan (DPSP) on behalf of a client who has one in place for his employees. On paper everything seems just fine. The investment climate is improving and on average every employee seems to be doing much better this year than last. But once I got beyond the glossy graphs certain issues started to become apparent.

Many employees hadn’t yet chosen an investment plan and were defaulting to the option chosen by their employer. A significant number of employees were withdrawing funds from their plans, presumably to supplement their current income. Most employees weren’t on track to meet their retirement savings goals. An education program for his employees wasn’t in place.

That’s not good for employees – and it’s not good for employers, who have a liability they may not be aware of. In 2004, the Canadian Association of Pension Supervisory Authorities issued guidelines for Capital Accumulation Plans (CAP) which refers to “a tax assisted investment or savings plan that permits the members of the CAP to make investment decisions among two or more options”.

While the guidelines haven’t been legislated, they nevertheless establish a standard to which employers who sponsor Group RRSPs and DPSPs are held to.

The bottom line is that an employer must provide a certain amount of support and guidance to an employee who is making decisions about his or her retirement savings.

Failing to do so can open the employer to liability should an employee decide to take legal action against the employer for failing to communicate the options or provide sufficient warning that withdrawing from RRSPs now may jeopardize retirement later.

At a minimum the employer is responsible for:

  • Ensuring that the CAP offers a wide range of investment options, and that guidelines for selecting  funds are followed.
  • Providing members with sufficient information about the funds available to them and the decision-making tools needed to make educated decisions.
  • Monitoring service providers, investment options and funds.

Simply writing a cheque and forgetting about it isn’t an option. If your company has a Group RRSP or DPSP ask your service provider or agent if they can help you with CAP compliance. Make sure you delegate this responsibility to the service provider in writing and monitor them to ensure that they are delivering. Failure to do so could be very costly for you down the road.

I just finished reviewing the annual reports for a Group RRSP and Deferred Profit Sharing Plan (DPSP) on behalf of a client who has one in place for his employees. On paper everything seems just fine. The investment climate is improving and on average every employee seems to be doing much better this year than last. But once I got beyond the glossy graphs certain issues started to become apparent.

Many employees hadn’t yet chosen an investment plan and were defaulting to the option chosen by their employer. A significant number of employees were withdrawing funds from their plans, presumably to supplement their current income. Most employees weren’t on track to meet their retirement savings goals. An education program for his employees wasn’t in place.

That’s not good for employees – and it’s not good for employers, who have a liability they may not be aware of. In 2004, the Canadian Association of Pension Supervisory Authorities issued guidelines for Capital Accumulation Plans (CAP) which refers to “a tax assisted investment or savings plan that permits the members of the CAP to make investment decisions among two or more options”.

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