Financial protection for the future, nest egg, retirement savings

Behavioural nudges to encourage retirement savings in workplace pensions, such as auto-enrolment features, are permitted under Ontario pension law, provincial regulators confirm.

The Financial Services Regulatory Authority of Ontario (FSRA) issued guidance on the use of automatic features in defined-contribution pension plans — such as auto-enrolment, auto-escalation, and default asset allocations — which established that these mechanisms are allowed under pension regulations.

FSRA said the guidance was crafted to address concerns that there may be legal or regulatory obstacles to adopting automatic mechanisms in DC plans in Ontario.

In fact, the regulator noted that these features can “enhance retirement outcomes for plan members.”

For instance, instituting defaults can enhance participation in retirement savings and increase contribution rates.

“These features also assist members in taking advantage of employer matching contributions that may otherwise go unused,” FSRA said.

The guidance noted that the distinction between an automatic feature and a mandatory one is the ability to opt out of a specific element of a plan and select an alternative.

FSRA said that several plans it oversees have these features, and it called on pension plan administrators to “evaluate the use of automatic features within the context of their plan.”

The regulator also called on administrators to review best practices in selecting a default fund, noting that they have fiduciary obligations “when they select and monitor the default fund and its related fees.”