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Group Savings & Pension Plan Downside
April 22, 2023
8:14 pm
moveyourmoney
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I’m involved in an employer group savings and pension plan. The contributions are managed by a life insurance FI along with their chosen fund managers, primarily Black Rock. A couple of years ago, BR decided to liquidate portions of funds in order to reinvest in higher rated ESG funds. This action triggered significant capital gains for hundreds of plan members (from the savings side). Plan members chose these funds for slow, steady growth for access at retirement, not for the tax exposure at the highest income earning periods of their careers. Even a switch away from the BR funds would not have avoided the tax consequences, too late. Although the company, FI, and fund manager all claim proper oversight and rules compliance to do this, it’s not right that the fund manager can make moves without the consideration of the plan members and their tax exposure. Many are asked for instalment payments from the CRA going forward. I’m going through the complaints process against the FI, but looking for insight and experience from some of this site’s contributors…lots of knowledge available. I might not be able to change things, but I’m not ready to just let these people do whatever they want with the members hard earned savings when it’s not right. The FI wants to distance themselves from the responsibility of oversight that they are trusted with, saying that they don’t hold the funds. I get that, but the members & company make contributions to the FI who only offer primarily BR portfolio (75%)…they should be challenging their fund managers in the interests of the plan participants they represent.

April 22, 2023
9:58 pm
Norman1
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I see no grounds for complaint. That is an expected consequence of investing in equities outside of a registered account.

It is not reasonable to expect no surprise realized capital gains outside of a registered account. Investors can be forced to realize gains by a successful takeover bid. Investor can also be compelled to sell and realize gains because the stock's price has become ridiculously high and the resulting portfolio weighting is imprudent. See story about Nortel investor who no longer has a $100,000+ capital gains tax issue.

April 23, 2023
4:28 am
Bill
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Might work out better, some people talking capital gains inclusion rates should/will be higher in the future.

April 23, 2023
5:23 am
mordko
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Agree that this is unfair and was done against investors’ interests. But… Have you read T&Cs? Fund managers typically reserve a right to liquidate their funds.
Blackrock did it to get silly points which they use for marketing purposes. Note that Vanguard quit ESG alliance and did very well as a result.
On a side note, pension plans are good because employers contribute to them. Why use their offering for non-reg accounts?

April 23, 2023
5:31 am
savemoresaveoften
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+1 re no grounds for complaints.

Just imagine on the flip side, the investments went sky high, fund manager does nothing (reason being NOT to trigger capital gain), investment value subsequent collapses. Are you now going to complain them NOT selling to lock it in....

April 23, 2023
8:20 am
Bill
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mordko, I think many people like the idea of saving via payroll deduction, that's why they use the non-reg option that the plan conveniently offers.

Going ESG is not always just for marketing, these days you risk incurring the ire of powerful shareholders' rights groups that will in a heartbeat organize boycotts, etc if you don't include virtue-signaling as a factor in choice of investments.

April 23, 2023
8:52 am
mordko
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Bill said
mordko, I think many people like the idea of saving via payroll deduction, that's why they use the non-reg option that the plan conveniently offers.

Going ESG is not always just for marketing, these days you risk incurring the ire of powerful shareholders' rights groups that will in a heartbeat organize boycotts, etc if you don't include virtue-signaling as a factor in choice of investments.  

Yes, but you pay for the automatic payroll deduction convenience with lack of choice and being at the mercy of a single fund provider’s whims as described by OP. And you can always set up a monthly direct debit from your chequing to your brokerage account to get the same convenience alongside better choice and lower fees.

Vanguard’s experience demonstrated that the “shareholder ire” is directed at the ESG lobby rather than the other way around. Words are just noise; money flows do the real talking.

April 23, 2023
10:37 am
Bill
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Some large pension funds (e.g. Ontario public teachers pension) have rejigged their investment strategy to meet ESG, it's the pensioners along with the activists that are both demanding it so it gets done. As long as you keep getting your DB inflation-indexed monthly payment might as well add a dash of virtue-signaling.

April 23, 2023
10:43 am
mordko
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Bill said
Some large pension funds (e.g. Ontario public teachers pension) have rejigged their investment strategy to meet ESG, it's the pensioners along with the activists that are both demanding it so it gets done. As long as you keep getting your DB inflation-indexed monthly payment might as well add a dash of virtue-signaling.  

The other side of the coin: a bunch of US states are punishing houses subscribing to ESG. On balance, it would appear that ESG hurts those who subscribe and rewards those who shun it https://www.bloomberg.com/news/articles/2023-01-16/vanguard-gets-extra-etf-billions-after-esg-lite-bet-pays-off#xj4y7vzkg

April 24, 2023
5:11 pm
moveyourmoney
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Norman1 said
I see no grounds for complaint. That is an expected consequence of investing in equities outside of a registered account.

It is not reasonable to expect no surprise realized capital gains outside of a registered account. Investors can be forced to realize gains by a successful takeover bid. Investor can also be compelled to sell and realize gains because the stock's price has become ridiculously high and the resulting portfolio weighting is imprudent. See story about Nortel investor who no longer has a $100,000+ capital gains tax issue.  

That is not the case here. These are conscious decisions that create unnecessary exposures.

April 24, 2023
5:14 pm
moveyourmoney
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mordko said
Agree that this is unfair and was done against investors’ interests. But… Have you read T&Cs? Fund managers typically reserve a right to liquidate their funds.
Blackrock did it to get silly points which they use for marketing purposes. Note that Vanguard quit ESG alliance and did very well as a result.
On a side note, pension plans are good because employers contribute to them. Why use their offering for non-reg accounts?  

In my estimation, a prudent CFP wouldn’t do this on an individual scale…same thinking should be applied for group plans.

April 24, 2023
5:18 pm
moveyourmoney
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savemoresaveoften said
+1 re no grounds for complaints.

Just imagine on the flip side, the investments went sky high, fund manager does nothing (reason being NOT to trigger capital gain), investment value subsequent collapses. Are you now going to complain them NOT selling to lock it in....  

The non-registered savings plan lost $32k in value while triggering capital gains…I assume the portion of the fund or sub fund that was making money was liquidated for new ESG funds, not a move many of the contributors on this site would make with their funds.
Also, members do not choose life path funds for volatility- otherwise, you’ll take your chances in the market, not through index funds.
Although the savings portion is non-registered, in order to have sufficient retirement funds, the company and FI present a “savings and pension plan” format…can’t divorce the savings plan entirely from the retirement strategy. Therefore, proper management and oversight are required that supports slow & steady growth approach, imo. What they’ve done does not align.

April 24, 2023
5:21 pm
moveyourmoney
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Bill said
Might work out better, some people talking capital gains inclusion rates should/will be higher in the future.  

Not a bad thought except I would take my chances accessing the funds in retirement when plan members are in a much lower taxable income vs at a time of highest career earnings.

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