They spent a month sleeping in her room at the Hospital for Sick Children, while she underwent chemotherapy treatments that failed to stop the disease. Soon after burying his little girl, the grief-stricken father got into a fight with the company that ran the registered education savings plan (RESP) he started to pay for her college costs.
“They advised that since we didn’t have any other children, we should close the account,” he said.
Samara died in February from neuroblastoma, a cancer that develops from nerve tissue. (Only 40 to 60 cases are diagnosed in Canada a year.)
The parents had put a total of $2,730 into her RESP, started in March 2011 with Children’s Education Funds Inc. They got a cheque for $287, just over 10 per cent of the money they had deposited.
Why did the refund come up short? The answer is fees.
Companies that sell an RESP known as a group plan or scholarship trust download a variety of costs onto contributors right away — rather than spreading out the costs over the years.
This means parents who drop out early because of illness, divorce or job loss get back a fraction of the money they deposit into a group plan.
In Chowdhury’s case, he found that the company deducted an enrolment fee of $2,225.85, which helped pay for marketing costs and sales commissions. This was the main culprit.
It also deducted an insurance amount ($140), miscellaneous charge ($41.80), depository fee ($27.10), interest deficiency ($4.49), CESG administration fee ($2.60) and foundation administration fee ($1.20).
CESG stands for Canada Education Savings Grant, which was introduced in the late 1990s by the federal government as an incentive for parents to save for post-secondary education in an RESP.
Group RESPs are less flexible than the self-directed plans offered by banks, credit unions and mutual fund dealers.
Subscribers pay a specific amount each month, which is pooled with the contributions of other subscribers who have children of the same age. The money goes into conservative investments and grows tax-free.
Many parents like the forced savings and professional management of a group plan. They don’t worry about picking investments and risking the loss of their own savings and the government grants.
But few parents understand the complex rules that lie behind a group RESP. This plan is regulated as a security and comes with a thick document, known as a prospectus, written by lawyers with a tendency to obscure the meaning.
Chowdhury, 30, works as an auditor at a large Toronto accounting firm (KPMG). He moved to Canada from Bangladesh nine years ago.
He and his Canadian-born wife, 29, a University of Toronto graduate student, didn’t bother to read the fine print. They bought the RESP as a favour for a friend who was selling it.
“I don’t understand how they can get away with setting up a plan like this,” he said about the proliferation of fees
The company refused his request to transfer the RESP to another child — since the couple was considering adoption — and insisted that they had to close the plan.
He protested that the company had sent a form letter, saying they could suspend their plan for up to three years. He was not allowed to speak to management.
Allison Haid Caughey, chief compliance officer at Burlington-based Children’s Education Funds, quickly agreed to reverse the policy when I contacted her.
“I feel terrible for the family,” she said. “I’m a mother. In this case, a full refund of all deposits and fees is most certainly justified.”
The tax rules specify that RESPs can be transferred only to a blood relative, she explained. In most families with a deceased child, there is a sibling who can inherit the savings.
Parents can’t suspend an RESP while waiting to adopt or give birth again because of another tax rule: The new RESP beneficiary must have a social insurance number.
“A lot of the confusion arose from the discussion about transferring the plan to another beneficiary,” Haid Caughey told me.
“This complaint didn’t cross my desk and that’s regrettable. It should have been bumped right up to the top of the company.”
The company will not — and should not — make a dime off the fees charged, she emphasized. A full refund will be given on compassionate grounds.
Compassion was something he missed when talking to company staff, Chowdhury said.
“When I was in the hospital with my daughter, the bank said I could get a mortgage vacation. But with the RESP, the reps kept saying there was nothing they could do. The policy is what the policy is.
“There was no sympathy. They were so cold. When I first called, no one even offered any condolences.”
Chowdhury felt better after speaking to Haid Caughey on Tuesday and finally getting an apology.
“She listened to my experience and promised to look into retraining their customer service reps to handle special circumstances,” he said.
Group RESPs are currently under scrutiny by securities regulators. They want to see better disclosure of the fact that the refunds for early dropouts are slashed by a horde of up-front fees.
Still, when a child dies tragically within a year of being enrolled in a plan, the parents must get a total refund. That is the only acceptable answer.
Let’s hope this company learns a lesson in treating bereaved parents with sympathy and respect.
Original Article
Source: moneyville
Author: Ellen Roseman
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