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).
Structure Change of all SLGI Granite Target Date Funds
SLGI Asset Management Inc. (“SLGI”) will implement a fund structure change to the Sun Life Granite Target Date and the Sun Life Granite Multi-Risk Target Date series segregated funds (“Granite TDFs”). The structure change will occur on August 23, 2023. Sun Life Group Retirement Services (“GRS”) will support plan sponsors and its members through this change.
Currently, Granite TDFs invest in individual underlying funds that provide exposure to different asset classes. GRS administers Granite TDFs based on directions from SLGI’s Multi Asset Solutions (“MAS”) team. Under the new structure, each Granite TDF will invest in units of an underlying SLGI fund, which in turn invest in various individual funds and securities. SLGI will administer the pooled funds, including managing transactions of underlying funds and securities. The new structure is similar to how all other GRS segregated funds invest in other managers’ target date funds. In all other cases, the GRS segregated funds invest in units of a single underlying fund.
The new Granite TDFs’ structure is expected to result in the following:
- Broader toolkit to implement investment ideas. The new structure gives the SLGI MAS team the flexibility to invest in broader types of securities, including exchange traded funds (“ETFs”) and derivatives, as appropriate.
- Easier and faster execution of trades. SLGI can execute trades faster, which will enable the SLGI MAS team to implement strategic and tactical decisions more quickly, as well as make changes to underlying funds as necessary.
- More efficient GRS segregated fund Rate of Return variance test. GRS conducts a monthly variance test to ensure that the return of the segregated funds is in line with that of the underlying fund. Under the legacy structure, GRS conducted the comparison against the aggregate returns of all 23 underlying funds. Under the new structure, GRS compares each of the Granite TDF’s returns to a single SLGI pooled fund’s returns, which is a more efficient process.
With this structure change, SLGI will be more agile and help deliver on their commitment to the Net Zero Asset Managers (“NZAM”) initiative, through:
- Improved NZAM roadmap. The broader flexibility of the structure will make it easier to add funds and other investment instruments that will contribute to SLGI’s NZAM goal.
- Efficient NZAM tracking. SLGI will have enhanced transparency in the Granite TDFs underlying holdings, improving their capabilities to track their NZAM progress.
There’s no change to the Granite TDFs’ fees as a result of the structure change.
Addition of two new Retirement funds (Conservative and Aggressive) in Sun Life Granite Multi-Risk Target Date series only
SLGI and GRS will add two new Retirement funds to the Granite Multi-Risk Target Date series, namely the Sun Life Granite Conservative Retirement and Sun Life Granite Aggressive Retirement segregated funds (“Granite Multi-Risk Retirement funds”).
- If you offer the Granite 2020 Multi Risk Target Date funds, we will automatically add the two new Granite Multi-Risk Retirement funds to your line-up on September 7, 2023.
- If you don’t currently offer the Granite 2020 Multi Risk Target Date funds in your plan(s), we will automatically add the new Granite Multi-Risk Retirement funds to your line-up on September 14, 2023.
SLGI is adding the new Granite Multi-Risk Retirement funds to provide greater choice and flexibility for retired plan members to meet their various risk tolerance, in the same way that the rest of the Granite Multi-Risk Retirement funds (2020-2065) do.
What will happen to the Granite TDFs during the fund structure change?
On August 23, 2023, we’ll transfer the units of the underlying funds that are held by the GRS segregated funds to SLGI and receive units of the SLGI’s pooled funds from SLGI. Because the Granite TDFs have generated unrealized capital gains or losses over the years and this transfer involves the disposition and acquisition of distinct investments by the GRS segregated funds, it will result in taxable dispositions under the Income Tax Act (“ITA”) within the GRS segregated funds when the transfers occur. For Non-Registered members holding the Granite TDFs, this will result in the allocation of GRS segregated fund gains or losses to these members. We’ll report the gains or losses on 2023 T3 and T4PS tax slips will be available in February 2024.
Granite 2025 – 2065 and Granite Retirement funds
The number of Granite TDFs segregated fund units that your member hold won’t change. They also won’t see any of the segregated funds’ transactions in their account.
Granite 2020 funds
Given the fund structure change, we have determined that the best course of action is for the asset transfer from the Granite 2020 funds to the Granite Retirement fund(s) to happen earlier than June 2024, which was initially communicated. We’ll transfer the assets in the Granite 2020 funds to the Granite Retirement fund on September 7, 2023. The Granite 2020 funds’ asset mix has been identical to that of the Granite Retirement fund since the 2020 funds matured in June 2020. Therefore, they still have the same exposures when they move to the Granite Retirement fund.
For the Granite Multi Risk 2020 funds, we’ll transfer the assets to the corresponding Granite Multi-Risk Retirement funds:
- Granite 2020 Conservative – transfer to Granite Conservative Retirement
- Granite 2020 Moderate – transfer to Granite Retirement (existing Retirement fund)
- Granite 2020 Aggressive – transfer to Granite Aggressive Retirement
We’ll also redirect plan member contribution instructions for the Granite 2020 Conservative, Moderate and Aggressive funds to the corresponding Granite Multi-Risk Retirement funds.
When the transfer happens, members will see a sale of the Granite 2020 fund(s) and the purchase of the corresponding Granite Retirement fund in their accounts.
What is the impact to your members?
The above transactions may generate capital gains or losses for Non-Registered members in Granite TDFs. Note that in any year, capital gains or losses may also arise from any of the following transactions:
- If a member sells, or transfers, units from a segregated fund within a Non-Registered plan (including Employee Profit Sharing Plan).
- When the Granite TDFs transfer units of the underlying funds there will be capital gains or losses realized by the Granite TDFs which will be allocated to members.
- Segregated funds may sell units of their underlying fund to raise cash to fund member withdrawals. At the time of this sale, the segregated fund may trigger a capital gain or loss. In this case, these gains and losses are used to offset gains and losses of those members who withdrew the segregated fund units. If there are any excess gains or losses in the segregated fund after this offset transaction, they are allocated to other Non-Registered members who hold the segregated fund units as of December 31. This allocation is based on the number of segregated fund units each member holds throughout the year. If the members only hold units for part of the year, their share of gains or losses would be pro-rated.
- Due to trading activities triggered by SLGI, a segregated fund may receive capital gains distributed from the underlying fund(s). The segregated fund will then allocate these gains to Non-Registered members based on their unit holdings on the day of trading.
The tax reporting of capital gains or losses is a timing issue. Any capital gains triggered as a result of this transaction will result in an equivalent increase to cost basis which may reduce the size of the capital gain that would otherwise be incurred in a later year.
Members in Granite 2020 funds
By moving the asset transfer from the Granite 2020 funds to the Granite Retirement fund(s) earlier than June 2024, which was initially communicated, we aim at reducing the capital gain or loss impacts for Non-Registered (taxable) members.
Both the asset transfer to the Granite Retirement fund(s) and the fund structure change in Granite Retirement may generate capital gains or losses for members who invest in a Non-Registered plan. By moving the asset transfer from June 2024 to September 2023, we can avoid having the entire population of members incur a second realization of capital gains in 2024. This is because the timing will closely align to the broader fund structure change in September 2023, which will result in a taxable disposition for the segregated funds reported to investors as gains or losses.
Members must report capital gains or losses on their tax return in the year these transactions occur. We recommend they talk with a tax professional for advice specific to their situation.
For the members who invest in a Registered plan, the asset transfer to the Granite Retirement fund and the fund structure change will not result in a taxable capital gain or loss.
Click here to see a copy of the member communication, sent on June 29, 2023:
Members in Granite 2025 – 2065 and Granite Retirement funds
The fund structure change may generate capital gains or losses for members who invest in the above funds in a Non-Registered plan. They must report capital gains or losses on their tax return in the year these transactions occur. We recommend they talk with a tax professional for advice specific to their situation.
For the members who invest in a Registered plan, the fund structure change won’t result in a taxable capital gain or loss.
Click here to see a copy of the member communication, sent on July 21
Please contact your Sun Life Group Retirement Services representative.