WORKPLACE PENSIONS: NEXT GENERATION OR

FINAL FRONTIER?The Curious Case of Capital

Accumulation PlansC1053401

Outline of Presentation

Why did CAPs overtake the traditional defined benefit plan?

How are CAPS regulated? Potential legal issues associated with

CAPs Issues created by the CAP lifecycle Coming to terms with the reality of CAPs What does the legal future hold for CAPs?

Why Did CAPs Overtake DB Plans?

Not “overregulation” or bad case law Uncertainty about cost, and in particular,

unknown liability associated with future obligations

DB plans not invested in a way that matched assets and liabilities

Volatility and uncertainty led to demise of DB plans

How Are CAPS regulated?

Pension legislation does not deal with them in any detail which is curious given the prevalence of CAPS

CAPSA Guidelines 3 and 8 set out some best practices

Following Guidelines will not insulate from liabilities

Guidelines exist within existing legislative and common law environment

Potential Legal Issues

CAP Sponsor/CAP Member relationship is a fiduciary relationship

Duties are owed to CAP members by CAP sponsors

How are they discharged? Design (e.g. inadequate contribution

levels, investment options, fees) Education vs advice

Potential Legal Issues

How is the plan communicated to CAP members (retirement, retirement assistance or savings plan?)

Are CAP member demographics understood? Do they need to be?

In light of demographics, what steps need to be taken?

Coming to Terms With CAPS

CAPs are not going away We need to make them better Increased contribution levels and

legislation around options, investment advice, maintaining CAP participation after retirement are some examples of needed steps

CAP Sponsor and member action on fees

The Future

Unless action is taken, CAP retirees will retire into poverty

This will place a burden on society as a whole

This will also give rise to litigation and will likely result in employers paying the cost of certainty in contributions in a different way

There is need to accept the reality of CAPS and to work to make them better