Auto features have long been used in DC pension plans across the United States, the United Kingdom, and Australia, as a method to encourage employees to join the plan initially and continually increase their contribution as they accrue more service in the plan. Research and evidence has shown the benefits of automated features to potentially enhance the retirement savings of members. Plans have been more cautious in Canada, but the Financial Services Regulatory Authority of Ontario (FSRA) has now confirmed that these features are permitted in Ontario Registered Plans. It is important to note that the allowable features are ‘automatic’, not ‘mandatory’. The difference is that members can ‘opt- out’ of the automatic provisions, if desired. Automatic features include:
- Auto-Enrollment: all eligible employees are enrolled in the plan. In some cases, members who opt-out may be re-enrolled.
- Auto-Escalation: the plan increases member contributions based on a schedule or formula
- Default Funds: a fund is selected that is intended to be suitable for long-term retirement investing. The member’s account is invested in that fund unless the member selects a different option.
Plan sponsors should consult with their legal teams to ensure there is no breach of the Employment Standards Act regarding payroll deductions and consider the following:
- What period of advanced notice of the changes plan members should receive
- Whether the feature interacts with any collective bargaining agreements
- Whether new enrollment or election forms for plan members should be completed
- Whether the change in plan design will occur alongside changes in the employment contract
- How the sponsor will implement the opt-out option