The Financial Services Regulatory Authority of Ontario (FSRA) was established in 2019 as a reincarnation of the Financial Securities Commission of Ontario (FSCO). Their leader boldly stated that the revitalized institution would cut red tape and make it easier for companies to do business in Ontario. This mandate is balanced with the organization’s primary accountability to protect Ontario consumers.
We’ve seen progress from FSRA on several fronts, including these broad-based initiatives:
Guidance on Auto-Enrollment and Auto Escalation features
FSRA released guidelines on automatic features used in Defined Contribution (DC) pension plans. Evidence from research conducted in the U.S., the UK and Australia shows better savings outcomes for members with these features. Auto-enrollment means that eligible employees are automatically enrolled in voluntary plans but can opt-out if they wish. It can also include enrollment at the highest employee contribution rate to attract the highest employer match, with the employee retaining the option to choose a lower contribution. Auto escalation means employee contributions automatically increase as eligibility for a higher match increases, with the employee keeping the option to select a lower contribution. Guidance from FSRA increases confidence among plan sponsors and advisors about adding these features to plans, provided that plan demographics, such as age, earnings, financial literacy, tax considerations, and eligibility for government benefits, are reviewed first to ensure that employees would truly benefit.
FSRA advises sponsors who are adding auto features to consider:
- The notice period required for plan members when changes occur
- Whether features interact with any collective bargaining agreements
- Whether members should complete new enrollment or election forms
- Whether a plan design change should be included in a change in employment contract
- How the opt-out option will be implemented
Joint Task Force between FSRA and OSFI
The Office of the Superintendent of Financial Institutions (OSFI) supervises federally regulated financial institutions and pension plans, similar to FSRA’s role in Ontario. The two agencies set up a task force to explore ways to improve outcomes for pension plans and members. They recommend leveraging the good work done by the Canadian Association of Pension Supervisory Authorities (CAPSA) to continue giving guidance and sharing best practices with plan sponsors. Noting that member engagement is a pillar of a plan’s success, one key recommendation revolves around what sponsors can do to create it. The task force endorses distribution of the CAPSA DC Pension Plan member guides, created in October 2021 and available here. Choice of default fund and investment line-up design was another key topic. FSRA committed to revising its annual filings and data collection. We expect this to create more relevant data points and eliminate the accumulation of less useful information.
Alternative assets and risk management
FSRA reviewed the risk management practices for alternative assets of Ontario’s six largest public sector pension plans and shared their insights to identify leading practices. FSRA recognizes the uniqueness of public sector plans by their size, governance, risk management and investment expertise and notes that, since plan circumstances vary across the sector, plan administrators need to address the risks of alternative assets in a proportionate manner appropriate for their plan. They hope to assist plan administrators in meeting their standard of care. Specifically, plan administrators can review a list of questions to consider for investment in externally managed funds of alternative assets. Ask your consultant for the shortlist of questions if you are interested.
The following enacted and potential changes are more specific to the everyday functioning of pension plans:
Ontario’s Form 7 – Summary of contributions
The good news is that the threshold for reporting a variance increases from 10% to 25% for DC plans but remains at 10% for DB. Your plan trustee will continue to check monthly that you have submitted your contribution but will now check quarterly (instead of monthly) to ensure that the amount they received is within 25% of what you reported on Form 7. Form 7 has been revised and can be found here or ask your consultant to provide one for you.
Ontario Family Law Guidance
FSRA released final guidance on the administration of pension benefits upon marriage breakdown in November 2021. The guidance clarifies their position on valuation, payment and division, and survivor benefits when marital assets are split. They have updated the member/spouse guide with plain language, available here and simplified the forms to be used, available here. FSRA held an industry webinar to outline these changes.
DC Plan Financial Statement Audits
FSRA is now deciding whether to remove the requirement for DC plans to file audited financial statements. All DC plans must file a financial statement for the plan year within six months of that year-end date, and the statement must be audited if assets are at least $10 million (increased from $3 million since the end of 2019). The Ministry of Finance recommends that a DC plan’s financial statement does not require an audit, regardless of the size of assets, and we agree that FSRA should make that change. Consultation from the public ended Nov 23, and we hope to hear good news from FSRA early in 2022.
Statement of Investment Policies & Procedures (SIPP) for DC Plans
Similarly, FSRA is deciding whether to remove the requirement for DC plans to have a SIPP document. SIPPs for DC plans are quite standard for plans where members choose their investments (which is the majority of plans), so removing the SIPP requirement would be welcome. This is another recommendation from the Ministry of Finance which would remove the current requirement.
The time for FSRA allowing delayed filings is closing. Relaxation of rules is coming to an end as plan administrators and service providers have had significant time to adapt to working remotely. FSRA has started to reinstitute processes for following up with plan administrators on outstanding filings. These processes include levying administrative monetary penalties, where appropriate. FSRA will employ a phased approach to compliance with legislative filing requirements and will start levying penalties in 2022.
We welcome FSRA’s active role in driving change to improve the efficiency of retirement savings plans and, ultimately, lead to successful outcomes for all plan members.
Reach out to your Cowan retirement consultant if you have questions about these changes or want access to forms or learn how the changes may affect your plan or your role in managing it.