How important is governance to the success of a CAP?

Updated on February 11, 2025. Originally published February 27, 2024.

What is the CAP Guideline?

Issued by the Canadian Association of Pension Supervisory Authorities (CAPSA), Guideline No. 3: Guideline for Capital Accumulation Plans, or CAP Guideline, is a framework of best practices for setting up and managing CAPs in Canada. It makes it possible to have common standards across different federal and provincial jurisdictions.

While the CAP Guideline isn’t law, it reflects the expectation of regulators regarding standards for operating a CAP. Courts are usually expected to look at this guideline as the generally accepted standard of conduct. 

What the CAP Guideline covers

The CAP Guideline outlines the rights and responsibilities of the key CAP players, including the sponsor, administrator, service provider, and members. It also covers what information and assistance members need to make investment decisions.

The key message of the guideline is that the responsibilities of a CAP sponsor go beyond setting up the plan. The sponsor is responsible for:

Setting up the CAP—This includes defining the purpose of the plan and deciding whether to use service providers to carry out certain tasks.

Investment selection and monitoring—The investment lineup should allow members to select a suitable portfolio for their long-term investment objectives. The guideline outlines the process for fund selection, assessment of the different elements, and states the need to document the selection criteria.

Onboarding and ongoing member education—The guideline lists materials and tools to support members’ onboarding and their ongoing information needs to help ensure successful outcomes. Examples include enrolment materials, investment information, decision-making tools, and member statements.

Fee management and disclosures—The sponsor must ensure that fees paid by members in the program are reasonable and competitive and must disclose those fees to the members.

Advice—The sponsor must ensure that any third party selected to provide financial advisory services to members is qualified to offer advice.

Maintaining a CAP—This includes reviewing the service providers, investment options, records maintenance, and decision-making tools for members. The guideline also covers the termination of a plan or a member’s participation in the plan.

The updated CAP Guideline is here

The world of group retirement has changed in the 20 years since the original guideline was adopted. The industry has grown, there are more investment options, and digital technologies have changed how sponsors and members can administer, join, and interact with their retirement plans.

This is why CAPSA issued an updated CAP Guideline in 2024, addressing the changes in the group retirement landscape and introducing new elements. The updates clarify roles and responsibilities, cover new products and future innovations, expand on disclosures to members, and reflect changes to the regulatory environment.

The updates also provide guidelines for the CAP sponsor to establish and document a governance framework appropriate to the size, complexity, and other characteristics of both the plan and the sponsor.¹

How does a governance framework help a CAP?

An effective CAP governance system helps ensure that all decision-making is supported by clear criteria and considerations and that decisions are monitored over time and documented. Due diligence in this area may be the sponsor’s most effective tool in helping to prevent situations that could lead to a legal challenge of CAP decisions.

Maintaining a CAP governance framework

A governance model for a CAP includes these key elements:

• Plan design and implementation
• Investment structure
• Plan administration
• Member education and communication
• Documentation
• Operational risk

Who can help?

The CAP Guideline can allow the sponsor to delegate certain tasks to service providers. These can include recordkeeping, investment selection, fee negotiation, ongoing fund monitoring, member onboarding, and education.

Advisors and consultants with CAP experience can assist the sponsor with some of these tasks, as well as the selection of other service providers. When it comes to governance, they can help the sponsor develop and maintain a robust framework and help them meet their CAP Guideline obligations.

Here are some of the ways advisors and consultants can help with each component and key element of governance.

1 Plan design and implementation

• The sponsor must identify the optimal plan type to offer employees, determine a competitive contribution formula, and establish plan rules.
• The advisor or consultant can provide guidance on competitive plan features and contribution levels.

2 Investment structure

• The sponsor establishes criteria for selecting and monitoring the investments that will be offered in the plan, selects the range of investments, and chooses the funds in the lineup. The sponsor must also monitor the funds periodically and ensure reasonable fees.

• The advisor or consultant can assist the sponsor in selecting and implementing a prudent investment structure for the plan and in monitoring the investment lineup over time to ensure it’s appropriate and effective. The advisor or consultant may establish a preferred lineup that they maintain and monitor across their plans.

3 Plan administration

Typically, all but the largest sponsors use a third party for recordkeeping tasks. These can include payroll interface, assistance with compliance and documentation, communication and education, comprehensive investment lineups, and member advice.

• The sponsor must establish criteria for selecting and monitoring the recordkeeper, evaluate its capabilities, and ensure reasonable fees.

• The advisor or consultant can assist in establishing these criteria and in the process of selecting and monitoring the recordkeepers for performance and competitive fee structure. The advisor or consultant can also review the recordkeeper’s reporting together with an annual compliance statement to assess the ongoing effectiveness of the recordkeeper.

4 Member education and communication

• The sponsor provides members with enrolment material (plan summary, risk tolerance questionnaire, retirement planning tools, description of investment options), periodically reviews plan communications, and provides annual education programs and member statements.

• The advisor or consultant can assist by reviewing the plan rollout material and periodically reviewing the education material to ensure that it remains effective and relevant. Where advisors are licensed, they could directly assist in the rollout of educational resources.

5 Documentation

• The sponsor must draft the plan text and other supporting plan documentation for certain plans, such as registered pension plans. This responsibility would include drafting the statement of investment principles and procedures and periodically reviewing plan documentation to ensure it remains current.

• The advisor or consultant can help by engaging the recordkeeper or external legal support to review CAP documentation and ensure that it’s filed with the appropriate regulatory authorities. The advisor or consultant should also encourage and assist in a periodic review of CAP documents to ensure they remain effective and in compliance with legislation.

6 Operational risk

• The sponsor’s responsibilities include ensuring proper links with payroll, legal compliance of the plan, formalizing and documenting governance processes, and making key plan decisions.

• The advisor or consultant can help by ensuring that there is a prudent governance process in place that is documented by the sponsor and that the proper processes are implemented by the sponsor and recordkeeper to maintain the plan.

Getting started

Governance is an important addition to the CAP Guideline, playing a key role in helping sponsors establish and manage modern, outcome-focused plans. Since not all plans are the same, neither are governance processes. Sponsors should consider speaking with an advisor or consultant to help review or establish a governance framework tailored to their specific CAP needs.

1 CAPSA Guideline No. 3: Guidelines for Capital Accumulation Plans, section 2.1.2.