Update to the maturity process for the BlackRock LifePath® Index 2020 Fund
Plan sponsors may wish to consider whether this investment news has any implications for the investment options available within their plans. Sun Life Assurance Company of Canada purchases units of the funds listed below, which are established as segregated funds in accordance with the Insurance Companies Act (Canada).
BlackRock Asset Management Canada Limited (BlackRock) has announced an update to the maturity process for the BlackRock LifePath® Index 2020 Fund (LifePath 2020 Fund).
What happens when LifePath 2020 Fund reaches its year of maturity?
In general, when a LifePath Fund reaches the year identified in its name, it will have reached its most conservative investment mix. This investment mix seeks to provide income and moderate long-term
growth of capital for investors beginning to withdraw their money. At some point, BlackRock will automatically merge the maturing LifePath fund into the BlackRock LifePath Index Retirement Fund (LifePath Retirement Fund).
The LifePath 2020 Fund’s asset mix will stop evolving and will become identical to the LifePath Retirement Fund in December 2019. At that time, plan sponsors who don’t already offer the BlackRock LifePath Index Target Date series will no longer be able to add the LifePath 2020 Fund to their line-ups. In addition, Sun Life will set up an automatic process to ensure that members invested in the LifePath 2020 Fund will have their future contributions directed to the LifePath Retirement Fund.
After mid-December 2019, no member contributions will go into the LifePath 2020 Fund. Contributions from defaulted members will automatically go into either the LifePath Retirement Fund or the LifePath fund that is closest to their target retirement year. For members who made a specific LifePath fund selection, contributions will go into their chosen fund. For members whose chosen fund is the LifePath 2020, contributions will go into the LifePath Retirement Fund.
The LifePath 2020 Fund will close and merge into the LifePath Retirement Fund in December 2024. This longer time period between the target date fund maturity and closure/merger into Retirement fund is consistent with the process for the LifePath 2010 Fund. Specifically, the LifePath 2010 Fund closed and merged into the LifePath Retirement Fund in December 2014. However, for the LifePath 2015 Fund, BlackRock opted to close and merge it into the LifePath Retirement Fund at the same time, in December 2014.
Why will BlackRock wait 4 years between the maturity of the LifePath 2020 Fund and its merger into the LifePath Retirement Fund?
BlackRock opted to give plan members with money in the LifePath 2020 Fund more flexibility/time for tax planning purposes. It’s particularly important for investors who hold the fund in a non-registered plan as the merger of a maturing target date fund into the Retirement fund currently constitutes a taxable event in Canada.
Summary of timeline of LifePath 2020 Fund maturity
We’ll be closing the LifePath 2020 Fund to new members in mid-December 2019. At that time:
- The LifePath 2020 Fund will no longer be available for addition to plan sponsor line-ups.
- The LifePath 2020 Fund will no longer be available as a default fund.
- The LifePath 2020 Fund will no longer receive new money (i.e. contributions or transfers-in).
- We’ll redirect Plan member contribution instructions for the LifePath 2020 Fund to the LifePath Retirement Fund.
Plan members can keep their money in the LifePath 2020 Fund until December 2024, when it will merge into the LifePath Retirement Fund. Alternatively, plan members can move their money in the LifePath 2020 Fund to the LifePath Retirement Fund (or any other LifePath fund that fits their needs) any time before December 2024.
Plan members with money in the LifePath 2020 Fund that are part of non-registered plans will likely experience a capital gain or loss when the money is transferred to the LifePath Retirement Fund. The members must report capital gains, if any, in the year their assets are moved.
There are no tax implications for money held in registered plans.
We’ll post a message outlining the changes and potential tax impacts to the Plan Member Services website.
About the BlackRock LifePath Index Target Date fund series
The BlackRock LifePath® Index Target Date funds series use a fund-of-funds approach to create a balanced asset mix. This means the LifePath® Funds invest in other funds, rather than directly in stocks or bonds. BlackRock does not tactically manage the asset mix. BlackRock invests assets in passive, index-replication funds, providing exposure to various asset classes. In other words, they invest in funds to attempt to match the financial market. These include:
- Canadian equities
- U.S. equities
- International equities (developed and emerging markets)
- Fixed income (domestic and foreign)
- Real Estate Investment Trusts (REITs)
- Alternative investments
- Cash and equivalents
The series is available with target maturity dates in 5-year intervals (Retirement, 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055 and 2060). Members select the target date fund that most closely aligns with the year when they wish to retire. Each fund gets more conservative as it moves closer to its maturity. At maturity, each fund moves into the Retirement fund.
About the BlackRock LifePath Index Retirement Fund
The LifePath Retirement Fund targets people currently near or in retirement. As such, it is seeking income and moderate long-term growth of capital. It holds a blend of investments that investors may find appropriate for retirement years. It invests approximately 40% of its assets in stocks and around 60% in bonds.
The LifePath Retirement Fund is the most conservative fund in the LifePath series of target date funds. It’s also the only LifePath Fund that maintains a near-consistent investment mix over time.
How will this impact you and your plan members?
You or your plan members do not need to take any action at this time.
Plan members with money invested in the LifePath 2020 Fund as part of a non-registered plan should consider the tax impact the merger may have on their particular situation.
Closer to the merger date, we’ll provide you and your plan members with further information as to any possible tax and other consequences that may occur as a result of the fund merger.
Please contact your Sun Life Group Retirement Services representative.