The Association of Canadian Pension Management is once again calling on the Ontario government to modernize the Employment Standards Act and the Pension Benefits Act to allow for automatic enrolment and escalation features in capital accumulation plans.
In a letter sent to the ministry of labour on Nov. 30, 2021, the ACPM noted the changes would make it easier for employers to deduct employee contributions from payroll automatically without a burdensome consent process and enable auto-enrolment and auto-escalation features in voluntary workplace CAPs with employer-matching contributions.
Additionally, the ACPM said many Ontario CAP sponsors have written letters to the provincial government voicing their support for enabling these features. It also shared data from two surveys conducted in 2020 that found there’s a great deal of interest among plan sponsors for the implementation of automatic features in workplace pension and savings plans.
The letter also included a comparison of the enrolment percentages among Sun Life Financial Inc.’s plan sponsors, comparing traditional opt-in methods with new hires versus implementing auto-enrolment with new employees. Among financial organizations that use traditional opt-in methods, the participation rate was 79 per cent in early 2020 compared to 72 per cent in 2015, with 11 per cent of plan members not taking advantage of their full employer match. Meanwhile, the participation rate for those with auto-enrolment was significantly higher at 95 per cent. Notably, new hires defaulted to a savings rate to receive the full employer match and only seven per cent of plan members chose to reduce their starter rate.
Within large construction companies, the participation rate for those with traditional opt-in plans was 57 per cent, compared to 98 per cent for those with auto-enrolment features. Among large mining companies, those with traditional opt-in features had a participation rate of 62 per cent, 44 per cent of whom didn’t take advantage of the full employer match. However, the participation rate for new hires who were in plans with auto-enrolment was 97 per cent.
Among large pharmaceutical companies, the participation rate for new hires under traditional opt-in plans was 60 per cent, while those with auto-enrolment was 97 per cent. Among large property and casualty insurance companies, the participation rate was about 89 per cent, compared to 98 per cent for those with auto-enrolment. And although the mid-sized software companies polled had newer plans, without comparable data, these plans had a 96 per cent participation rate.
The ACPM’s letter also stated it disagrees that pooled registered pension plans offer a route to use automatic features, noting that, for employers with existing plans — often a single plan with both defined contribution and defined benefit components — it may not be practical or desirable to introduce an entirely separate plan. It also said auto-features aren’t appealing for plan sponsors that wish to have more control over and customization of their retirement programs to suit their employee populations. And employers with existing, well-established group registered retirement savings plans — and increasingly, tax-free savings accounts — that are comfortable with their fiduciary obligations may not wish to disrupt these arrangements in order to switch to an entirely different product.
The ACPM also highlighted other features of PRPPs that may limit the effectiveness and desirability of auto-enrolment and escalation, including: that employers are responsible for collecting opt-outs and then communicating those to the administrator; the third-party administrator isn’t able to assist with managing the opt-out process; the employer is required to wait for a period of time before remitting contributions; contributions aren’t remitted from the first pay; opting out of the plan is a separate process from setting the contribution rate to zero; and rules around when a member can change their contribution rate to zero are complicated and may come with term limits before being able to make the change.
In some cases, changing a contribution rate to zero can be done only after a year of contributions and only for a period of three to 60 months or a notice of 90 days must be provided before contributions are re-instated, noted the letter. And when auto-features are implemented in DC plans, they don’t typically encounter these restraints.