Good News & Bad News from FSRA
I’ll cover two topics related to the Financial Services Regulatory Authority of Ontario (FSRA) in today’s blog:
- FSRA’s proposed updates to its fee schedules
- The launch of FSRA’s first annual Pension Awareness Day
I always like to get the bad news out of the way first.
FSRA’s Consultation on Their Fees
Like many regulators, FSRA operates on a cost recovery model such that it is self funded by charging assessments and fees to the participants in the various sectors that it regulates. Of course, I’ll focus on the pension sector, but keep in mind that FSRA also regulates other sectors such as credit unions, insurance companies, mortgage brokers, financial professionals, etc.
Some of you may remember a few years back when FSRA replaced the Financial Services Commission of Ontario (FSCO) and revamped their fees. Many were caught off guard by the substantial fee increases at that time, especially smaller pension plan sponsors since the minimum fee tripled from $250 to $750 per year.
Well, FSRA continues to grow and the number of pension plans continues to shrink, so even before you consider the current inflationary environment, it’s a pretty safe bet that pension plan sponsors will have to dig a little deeper again this year.
FSRA is currently seeking feedback on their proposed changes to their fees and there are two main changes for pension plans. The first is that the minimum assessment fee is proposed to increase from $750 to $1,000 – a 33% increase in 3 years. The second is that a tweak to the tiered assessment formula is proposed to reduce the economies of scale that the larger pension plans enjoy – there’s still a sliding scale, but it won’t be as steep. FSRA hasn’t yet shown what this will actually mean for the per member assessment fees, but apparently the change is reflective of the effort required to regulate the larger plans with their more complex issues. Increased fairness is good.
What I still don’t understand is why the same fees apply to all types of pension plans. A defined benefit (DB) pension plan definitely requires more supervision than a defined contribution (DC) pension plan, yet they pay the same fees. This will continue to drive more and more employers to setup Group RRSP/DPSP plans rather than true DC pension plans.
So, dear regulator, my feedback would be that it should be perfectly acceptable that larger pension plans somewhat subsidize smaller pension plans. Certainly, a minimum fee makes sense regardless of the plan size, but in an effort to reduce barriers to pension coverage, I would think that this is a reasonable compromise. In addition, dear regulator, there should be a separate much lower fee schedule applicable to DC plans; however, even if free, I’m not sure that the payroll tax savings of a DC plan would offset the burden of increased regulation (Form 7s, AIRs, etc.) and the reality is that DC plans are simply unattractive compared to other alternatives such as Groups RRSP/DPSP programs.
So, dear employers, the more the regulator hears from you the more they will consider those comments, so you may want to jump in to reinforce my suggestions above before the consultation closes on February 27, 2023.
Pension Awareness Day
To help generate greater awareness about the importance of saving and the benefits of workplace pensions, FSRA is marking its first-annual Pension Awareness Day on February 16, 2023. During the day, FSRA and other industry participants will be encouraging all Ontarians to take a few minutes to spread the word and engage family, friends and colleagues in a conversation about retirement planning.
Kudos to FSRA for launching this important initiative and hopefully we see some progress on their stated objectives:
- To create greater awareness about pensions generally, and the value of a workplace pension plan.
- To urge plan members to engage with their employers or unions to learn about the pension benefits they have or will be entitled to.
- To encourage employers or unions to proactively educate their employees about their pensions and the lifelong benefits they offer. This can help build morale in the workplace and improve employee retention.
- To get young people thinking about saving and investing as early as possible and the importance of developing a retirement plan.
So, dear reader, if you have a pension plan at your job, find out what type it is and if you can, take steps to increase your contributions. It’s all about striking a balance between living well today and planning for tomorrow. If you don’t have a pension, consider making a pension or retirement savings plan part of your job search criteria. If you are starting a new job, ask your employer if they have a pension or retirement savings plan. Learn some Pensions 101. Your future self will thank you!