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De-accumulating Assets Needs Consideration

As the defined contribution plan population approaches retirement in larger numbers, consideration needs to be given to de-accumulating assets, says Elizabeth Boyd, a partner, Blake, Cassels & Graydon LLP. She told the ‘De-accumulation of Defined Contribution Pension Plans: What is Permissible and What are the Effects?’ session at its ‘Recent Developments in Pension and Employee Benefits Law’ event that unlike defined benefit pension plans, DC does not provide a fixed stream of payments upon retirement. This creates risks for retirees including outliving retirement savings, the erosion of purchasing power due to inflation, and unforeseen expenses. While the Pension Standards Act and CAP guidelines indicate a plan administrator’s responsibility to educate members about retirement income issues, there is no requirement to give them advice and, once a member retires, they may be required to leave the plan. If this happens at the election stage, the administrator is discharged. However, some Canadian jurisdictions allow these plans to self-annuitize. This likely transfers post-retirement risks such as the selection of appropriate investment options, retiree education, and the monitoring of investment options and service providers to the administrator. When it comes to de-accumulation, employers need to consider the their obligations to former/retired members with respect to de-accumulation options and their potential statutory and common law liabilities with respect to different de-accumulation options.

Courtesy of Benefits and Pensions Monitor website News Alerts

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