The Office of the Superintendent of Financial Institutions has issued a guideline defining the eligible default investment options under pooled registered pension plans.

The Pooled Registered Pension Plans Act specifies that if a member has the option to select investments from the variety provided by the administrator but fails to make a choice in the allotted time (60 days after receiving notice of their membership in the plan), the default option is applies. It’s then the prerogative of the plan administrator to choose for the member, and the options must be either a balanced fund or a portfolio that takes the person’s age into account.

As the regulations don’t provide definitions for those two options, OSFI has offered the following interpretations. A balanced fund is one that “offers a mixture of safety, income and capital appreciation” and “typically has a target allocation of between 40 per cent and 60 per cent of its assets to equities and the remainder to fixed income investments.”

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As for an age-sensitive portfolio, OSFI calls it a balanced fund in asset mixture but notes it differs in that “the overall asset allocation of a target-date fund will gradually adjust over time to reduce risk as the target date (generally the investor’s expected retirement date) approaches.”

OSFI also raises the issue of the cost of portfolio administration. The regulations stipulate all costs associated with the portfolio should be equal or less than those incurred by members of defined contribution plans for 500 or more members.

Such an amount is potentially difficult to pin down. “Cheaper isn’t necessarily better,” says Zaheed Jiwani, principal at Eckler Ltd., noting it’s important to consider that while index-based options may have lower fees, they aren’t necessarily the best options for the timelines a retirement portfolio is sensitive to.

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As well, OSFI states employers offering a pooled plan must communicate a variety of details on the default option to their employees as soon as is feasible. They include the type of investment, risk level, investment objectives, target asset allocation, top 10 holdings by market value, costs, performance history, name and explanation of the benchmark that best reflects the assets, as well as a clarification that past performance isn’t an indication of future results.

OSFI also highlights certain events that should lead to a review of the design of the investment plan. They include consistent underperformance of the underlying investments, a change to the administration cost or the fund manager and any significant market or economic shifts.

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Copyright © 2020 Transcontinental Media G.P. Originally published on

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