National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Plan Sponsors, CAP Members, and a named service provider exempted from the dealer registration and prospectus requirements in the Legislation in respect of trades in securities of mutual funds to non-tax assisted savings plans which act as 'overflow' savings plans connected to tax-assisted capital accumulation plans serviced by the same service provider, subject to certain terms and conditions -- contributions to the non-tax assisted savings plans limited by reference to specified limits in the Income Tax Act (Canada) -- contributions to the non-tax assisted plans are not expected to be significant.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1)(a), 53, 74(1).
National Instrument 81-102 Mutual Funds.
National Instrument 45-106 Prospectus and Registration Exemptions.
Published Documents Cited
Amendments to NI 45-106 Registration and Prospectus Exemption for Certain Capital Accumulation Plans, October 21, 2005 (2005) 25 OSCB 8681.
January 12, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
BMO GROUP RETIREMENT SERVICES INC.
The principal regulator in the Jurisdiction has received an application from the Filer for a decision, on behalf of the Filer (including its respective directors, officers, representatives and employees acting on its behalf), any Plan Sponsor (as defined herein) and any Fund (as defined herein), under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a ruling:
(a) that the dealer registration and prospectus requirements contained in the Legislation shall not apply to the Filer (including its respective directors, officers, representatives and employees acting on its behalf) or any plan sponsor of a Non-Tax Assisted CAP (as defined herein) that uses the services of the Filer in respect of its Non-Tax Assisted CAP (including, but not limited to, any employer, trustee, trade union or association or a combination of them that establishes a Non-Tax Assisted CAP, and any service provider to the extent that the plan sponsor has delegated its responsibilities to the service provider) (a Plan Sponsor, or collectively, the Plan Sponsors) in respect of trades in the securities of the Funds to the Non-Tax Assisted CAP, subject to certain terms and conditions
(the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in the jurisdictions of Alberta, British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Nunavut, the Yukon Territory and the Northwest Territories (the Remaining Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
The defined term "CAP" used herein shall have the meaning given to the term "capital accumulation plan" as defined in section 1.1 of the Guidelines for Capital Accumulation Plans published in May 2004 by the Joint Forum of Financial Market Regulators (the CAP Guidelines).
The relief from the dealer registration requirement in the Exemption Sought shall be referred to as the Dealer Registration Relief.
The term Non-Tax Assisted CAP refers to a CAP that meets the definition of CAP in the CAP Guidelines and that is administered in accordance with the CAP Guidelines, but for the fact that it is a savings or investment plan that is non-tax assisted.
The relief from the prospectus requirements in the Exemption Sought shall be referred to as the Prospectus Relief.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation governed by the laws of Canada. Its head office is located in Toronto, Ontario.
2. A CAP is a tax assisted investment or savings plan, and can include a defined contribution pension plan (a DCPP, also known as a money purchase pension plan), a group registered retirement savings plan (a RRSP), a group registered education savings plan (a RESP), or a deferred profit sharing plan (a DPSP), established by a Plan Sponsor that permits an individual to make investment decisions among two or more investment options offered within the plan.
3. The Filer will provide its services to Plan Sponsors where the investment choices for the members of the CAP or Non-Tax Assisted CAP (each a Member and, collectively, the Members) include Funds of the Filer, its affiliates and/or Funds managed by a manager unrelated to the Filer, whether offered by prospectus or on a private placement basis.
4. The Filer intends to trade in securities of the Funds as part of the group retirement services it will provide to various Plan Sponsors from time to time.
5. Plan Sponsors to whom the Filer will provide services may be employers, trustees, trade unions, associations or a combination of these that establish a CAP or Non-Tax Assisted CAP.
6. A Plan Sponsor establishes a CAP or Non-Tax Assisted CAP for the benefit of individual Members. Members may include current or former employees, or a person who belongs, or did belong, to a trade union or association, or
(a) his or her spouse;
(b) a trustee, custodian or administrator who is acting on his or her behalf, or for his or her benefit, or on behalf of, or for the benefit of, his or her spouse; or
(c) his or her holding entity, or a holding entity of his or her spouse,
that have assets in a CAP or Non-Tax Assisted CAP, and also includes any person who is eligible to participate in such plans.
7. The services that the Filer will provide to the Plan Sponsor will generally involve recordkeeping of Member data, transactions processing in respect of Member accounts, provision of Member statements as required under pension standards legislation and/or the applicable recordkeeping agreement and processing changes to Member accounts such as termination, death, retirement or a change in marital status.
8. The services that the Filer will provide to the Members will generally include direct contact services through its call centre and a variety of self-help tools that allow Members to make investment decisions regarding their investments.
9. The Filer will not be involved in plan design, engage in discretionary decision making with respect to the CAPs, Non-Tax Assisted CAPs, or Member accounts, and will not select investments for the CAPs, Non-Tax Assisted CAPs or Member accounts, or provide investment advice to Members.
10. Members and, in some cases, the Plan Sponsor, will make initial investment decisions, and subsequent changes to those investment decisions, with or without the assistance of an advisor selected by the Member (which will not be the Filer). These instructions are transmitted to the Filer and the Filer will then transmit these instructions to the Funds directly. The interest in the securities of the Funds will be registered in the name of the Filer (or other nominee) for the account of the relevant plan. The Filer will establish and maintain the records reflecting the interest of each Member or Plan Sponsor, as the case may be, in each Fund.
11. The Filer, the Plan Sponsors and the Funds intend to trade within CAPs or to Members of CAPs in accordance with the conditions set out in proposed amendments to National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) related to CAPs, which were published by the Canadian Securities Administrators (the CSA) on October 21, 2005 (the Proposed CAP Exemption) and adopted in the form of a blanket exemption in the Remaining Jurisdictions, other than in Québec, Newfoundland and Labrador, the Yukon Territory and Nunavut (the CAP Blanket Exemption). The Proposed CAP Exemption and the CAP Blanket Exemption contemplate both dealer registration and prospectus exemptions, where required.
12. Though no equivalent to the CAP Blanket Exemption has been adopted in the jurisdictions of the principal regulator, Québec, Newfoundland and Labrador, the Yukon Territory or Nunavut, CSA Notice 81-405 Request for Comment on Proposed Exemptions for Certain Capital Accumulation Plans (the CAP Staff Notice) states that, in the jurisdiction of the principal regulator, the conditions described in the Proposed CAP Exemption will form the basis of the circumstances in which OSC staff expects that they could recommend that the principal regulator grant discretionary relief to an applicant. On November 17, 2009, the principal regulator granted the Filer a ruling (the Filer's CAP Exemption) providing prospectus and registration relief consistent with the CAP Blanket Exemption to allow the Filer to trade within CAPs and to Members of CAPs on conditions consistent with the CAP Blanket Exemption and the Proposed CAP Exemption. The Filer's CAP Exemption will be relied upon by the Filer in Quebec, Newfoundland and Labrador, the Yukon Territory and Nunavut.
13. The Filer is not in default of securities legislation in any jurisdiction.
14. The Filer may be requested by a Plan Sponsor to provide services to a Non-Tax Assisted CAP established by the Plan Sponsor for the benefit of individual Members. These Non-Tax Assisted CAPs would not constitute CAPs, as defined in the CAP Guidelines, the Proposed CAP Exemption or the CAP Blanket Exemption, since they are not "tax-assisted" under applicable legislation. Non-Tax Assisted CAPs are generally intended as non-registered employee savings plans to which excess contributions of Members that cannot be invested in a CAP because of legislative limits for such CAP investments will be invested on behalf of the Members.
15. Non-Tax Assisted CAPs will be established in conjunction with CAPs because Canadian tax legislation imposes a limit on the amounts that may be contributed to a CAP. The benefit formula under a Plan Sponsor's benefit program sometimes results in contributions that exceed that tax limit. A Plan Sponsor may establish a Non-Tax Assisted CAP to allow for those excess contributions to be invested in the same manner as the tax assisted contributions. These excess contributions to Non-Tax Assisted CAPs are not expected to be significant and in any event will be limited by the calculation set out in Condition (j) of this decision and subject to the remaining conditions set out in this decision.
16. Non-Tax Assisted CAPs will operate in the same manner as CAPs in terms of the relationship between Members and Plan Sponsors, and the duties, rights and responsibilities of Members and Plan Sponsors. The only significant difference between the two types of plans is the tax assisted nature of one and not the other.
17. Each Member of a Non-Tax Assisted CAP of a Plan Sponsor that is administered by the Filer will also be a member of the Plan Sponsor's CAP.
18. The Filer will administer the Non-Tax Assisted CAPs in accordance with the CAP Guidelines and, in the case of the Non-Tax Assisted CAPs, in a similar fashion to the related CAPs for the applicable Members. The Filer will only administer Non-Tax Assisted CAPs which originate out of CAPs of a Plan Sponsor also serviced by the Filer.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
1. for the Dealer Registration Relief;
(a) the Plan Sponsor selects the mutual funds that Members will be able to invest in under the Non-Tax Assisted CAP ;
(b) the Plan Sponsor establishes a policy, and provides Members with a copy of the policy and any amendments to it, describing what happens if a Member does not make an investment decision;
(c) in addition to any other information that the Plan Sponsor believes is reasonably necessary for a Member to make an investment decision within the Non-Tax Assisted CAP, and unless that information has previously been provided, the Plan Sponsor provides the Member with the following information about each mutual fund the Member may invest in:
(i) the name of the mutual fund;
(ii) the name of the manager of the mutual fund and its portfolio advisor;
(iii) the fundamental investment objective of the mutual fund;
(iv) the investment strategies of the mutual fund or the types of investments the mutual fund may hold;
(v) a description of the risks associated with investing in the mutual fund;
(vi) where a Member can obtain more information about each mutual fund's portfolio holdings; and
(vii) where a Member can obtain more information generally about each mutual fund, including any continuous disclosure;
(d) the Plan Sponsor provides Members with a description and amount of any fees, expenses and penalties relating to the Non-Tax Assisted CAP, as the case may be, that are borne by Members, including:
(i) any costs that must be paid when the mutual fund is bought or sold;
(ii) costs associated with accessing or using any of the investment information, decision-making tools or investment advice provided by the Plan Sponsor;
(iii) mutual fund management fees;
(iv) mutual fund operating expenses;
(v) record keeping fees;
(vi) any costs for transferring among investment options, including penalties, book and market value adjustments and tax consequences;
(vii) account fees; and
(viii) fees for services provided by service providers;
provided that the Plan Sponsor may disclose the fees, penalties and expenses on an aggregate basis, if the Plan Sponsor discloses the nature of the fees, expenses and penalties, and the aggregated fees do not include fees that arise because of a choice that is specific to a particular Member;
(e) the Plan Sponsor has, within the past year, provided the Members with performance information about each mutual fund the Members may invest in, including:
(i) the name of the mutual fund for which the performance is being reported;
(ii) the performance of the mutual fund, including historical performance for one, three, five and ten years if available;
(iii) a performance calculation that is net of investment management fees and mutual fund expenses;
(iv) the method used to calculate the mutual fund's performance return calculation, and information about where a Member could obtain a more detailed explanation of that method;
(v) the name and description of a broad-based securities market index, selected in accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, for the mutual fund, and corresponding performance information for that index; and
(vi) a statement that past performance of the mutual fund is not necessarily an indication of future performance;
(f) the Plan Sponsor has, within the past year, informed Members if there were any changes in the choice of mutual funds that Members could invest in and where there was a change, provided information about what Members needed to do to change their investment decision, or make a new investment;
(g) the Plan Sponsor provides Members with investment decision-making tools that the Plan Sponsor reasonably believes are sufficient to assist them in making an investment decision within the Non-Tax Assisted CAP ;
(h) the Plan Sponsor must provide the information required by paragraphs (b), (c), (d) and (g) prior to the Member making an investment decision under the Non-Tax Assisted CAP;
(i) if the Plan Sponsor makes investment advice from a registrant available to Members, the Plan Sponsor must provide Members with information about how they can contact the registrant;
(j) the maximum amount that may be contributed in respect of a Member to the Non -Tax Assisted CAP in a given year is limited to any positive difference between:
(i) the maximum amount that the Member and the Plan Sponsor would have been able to contribute for that year to the applicable CAP under the terms of the applicable CAP if contributions to the applicable CAP were not restricted to the maximum dollar limit provided in the Income Tax Act (Canada) (the ITA); and
(ii) the maximum dollar limit provided in the ITA for the applicable CAP,
provided that this maximum amount that may be contributed in respect of a Member to the Non-Tax Assisted CAP in a given year shall not exceed an amount equal to the "money purchase limit", as defined in the ITA, for the year.
In this paragraph (j), the amount determined under (i) shall be no more than 18 % of the Member's "earned income" as defined in the ITA and the "maximum dollar limit" means the "RRSP dollar limit" as defined in the ITA (in the case where the applicable CAP is an RRSP), the "money purchase limit" as defined in the ITA (in the case where the applicable CAP is a DCPP), one-half of the "money purchase limit" (in the case where the applicable CAP is a DPSP), or, the applicable maximum fixed dollar contribution prescribed under the ITA (in the case of any other type of CAP).
2. for the Prospectus Relief;
(a) the conditions set forth in paragraph 1 above are met;
(b) the Funds comply with Part 2 of National Instrument 81-102 Mutual Funds; and
(c) where a Member chooses to invest in a publicly available mutual fund selected by the Plan Sponsor as an investment option for the Non-Tax Assisted Plan, the current prospectus of the mutual fund will be made available, upon demand, to the Member;
3. this Decision, as it relates to the jurisdiction of a Decision Maker with respect to the Dealer Registration Relief will terminate upon the coming into force in securities rules of a registration exemption for trades in a security of a mutual fund to a CAP or 90 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to make such a rule;
4. this Decision, as it relates to the jurisdiction of a Decision Maker with respect to the Prospectus Relief will terminate upon the coming into force in securities rules of a prospectus exemption for the distribution of a security of a mutual fund to a CAP or 90 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to make such a rule.