Funds offered by insurance or trust companies may have a lower "Management Expense Ratio" (MER) for the funds offered because they are institutional investors and as such they already have infrastructure set up to process the necessary administration and reporting requirements of the pension fund assets. As institutional investors they "pool" the investment funds from all of their clients' accounts in order to send large sums (in to the millions) to various investment managers who provide "investment only" services. As a result, these investment managers charge "institutional" rates for their services; these fees are generally much lower than those they charge their retail clients. Please contact
the institutions for further information.
Insurance companies usually have their custodial and administration charges embedded in the total MER along with investment management fees. The fees charged by trust companies for custodial and trustee costs are usually quoted separately as a flat dollar amount.
Individuals acting as trustees may not have adequate knowledge or understanding regarding pension fund investments and custodial arrangements to act as pension plan trustees. Because of this, they may have a certain liability exposure in acting as a trustee. There may be potential liability on the individual as a pension plan trustee, we highly recommend these individual to review our summary on “The
Duties and Liabilities of the Trustee”. If an
IPP sponsor has difficulty finding individuals to act as
trustees, the sponsor will have to rely on the pension professionals
at the insurance companies and trust companies for custodial
services.
Investments
An IPP can have investment flexibility similar to a self-directed
RRSP subject to certain restrictions, including quality and diversification
standards. The IPP funds can be invested in stocks,
bonds, mutual funds, pooled funds, GICs, term deposits, etc.
Investment
Rules
The
investment rules for a registered
pension plan are outlined in Income Tax Regulation
8502(h) as follows:
the property held in connection with the plan does not
include:
(i) a prohibited investment under subsection
8514(1),
(ii) at any time that the plan is subject to the Pension
Benefits Standards Act, 1985 (Canada) or a similar
law of a province, an investment that is not permitted
at that time under laws as apply to the plan, or
(iii) at any time other than a time referred to in subparagraph
(ii), an investment that would not be permitted were the
plan subject to the Pension
Benefits Standards Act, 1985 (Canada).
The permitted investments under
Pension
Benefits Standards Act, 1985 (Canada) are outlined in Schedule
III of the Pension Benefits Standards Regulations, 1985.
For provinces where provincial registration of IPP is required,
there may be additional requirements imposed by the provincial
pension legislation.
The 30% foreign content limit has been eliminated as a result
of the February 2005 federal budget.
The key requirements, in brief, are:
- should
follow prudent-man standards with respect to quality and diversification
in investment of trust funds;
- investments
should not be in securities of the pension plan sponsor (participating
employer) or related corporations unless the company is publicly
traded;
- if
the investment is in individual securities (e.g. stocks or bonds),
each security can not be more than
10% of the fund on a book value basis at the time
the investment is acquired (note - mutual funds or pooled funds
are not subject to this restriction as they are already diversified).
