The Office of the Superintendent of Financial Institutions and the Financial Services Regulatory Authority of Ontario are putting forward six recommendations for strengthening the Canadian Association of Pension Supervisory Authority’s capital accumulation plan guidelines.
In a webinar hosted in November 2021, the regulators shared the outcomes of its technical advisory committee and solicited feedback from the industry on how to improve the outcomes of defined contribution pension plans while also improving regulatory effectiveness and efficiency. The recommendations and next steps were made available on the FSRA’s website last week.
The first recommendation was around outcomes-focused decision-making, highlighting the concept of the purpose of a DC plan by making it more resonant in plan governance activities. The OSFI and the FSRA suggested that governance is more than a “check-the-box” exercise and noted the guidelines should define purpose in terms of a plan’s intended outcomes for members, i.e., focus on retirement income rather than just savings.
Second, the regulators recommended that the guidelines treat member engagement as a pillar of success, including additional guidance for addressing the challenges of enhancing member engagement. In particular, they suggested that the guidelines consider leading communications techniques, behavioural economic insights and on-going engagement, as well as highlighting the usefulness of outcomes to frame engagement and encourage action.
Recommendation No. 3 was around investments — in particular, including more specific guidance into appropriate default fund selections and investment lineup design principles. The OSFI and the FSRA suggested the guidelines consider the appropriateness of default funds for plan members and their investment time horizon. As well, they noted a limited number of investment options may lead to improved member outcomes and more efficient administrator governance.
The fourth recommendation related to ensuring DC plan sponsors and administrators adhere to common standards of governance and responsibility to plan members. The OSFI and the FSRA noted this should be the case even when plan sponsors delegate these activities and they should also provide practical, simplified governance tools.
Fifth, the OSFI and FSRA highlighted the importance of aiming to achieve value for money when making administration and investment decisions. This includes ensuring the guidelines help administrators and plan sponsors make informed decisions around fees and provided information about fees to members.
And the final recommendation was around decumulation — in particular, considering guidance to help support members during their decumulation phase.
In terms of additional developments and next steps, the committee encouraged the OSFI and the FSRA to evaluate resources and tools to support employers; work with industry, governments and regulators; and keep the CAPSA informed of their work.
For the FSRA in particular, it said it will re-think its supervisory approach to DC plans; review/revise its annual filings and data collection; and assist government with any regulatory changes.
And the OSFI said it will further develop its supervisory framework for federally-regulated pension plans; review/revise its annual filings and data collection; and consider issuing or reviewing existing guidance on DC plans.