The Financial Services Regulatory Authority of Ontario is encouraging defined contribution pension plan sponsors and administrators to evaluate the use of automatic features within the context of their plans.
New guidance posted to the FSRA’s website affirms that the Pension Benefits Act and its regulations don’t prohibit the use of automatic features in defined contribution pension plans. These features could include auto-enrolment, auto-escalation and default funds, it noted, and may enhance retirement outcomes for plan members.
“Research shows that auto-enrolment and auto-escalation benefit members in many cases,” said the guidance. “They do so by defaulting members to participate early in the plan and automatically increasing contribution rates over time. This helps members build their retirement savings during employment. These features also assist members in taking advantage of employer matching contributions that may otherwise go unused.”
Despite these potential benefits, the FSRA also noted that automatic features may not be suitable for all plans or all members. Plan member demographics — including age, earnings, financial literacy, tax consideration and eligibility for government benefits — are important factors when administrators are considering automatic features, it said.
The guidance is effective as of Nov. 8, 2021 and will be reviewed no later than Nov. 8, 2024.