OSFI issues Guidance Note on default options for DC plans

The federal Office of the Superintendent of Financial Institutions (OSFI) has published a new Guidance Note outlining OSFI’s interpretation and expectations respecting the requirements for the default investment option selected by the plan administrator in federally regulated member choice defined contribution pension plans. The Guidance Note sets out OSFI’s recommendations regarding suitable default investment options, as well as the process for selecting, documenting, communicating and periodically reviewing the default investment option. In particular, the Guidance Note suggests that a money market fund may not be suitable as a default option, and that the administrator should consider either a balanced fund or a target date fund as a default option.

Selecting a suitable default investment option

OSFI advises that, in selecting a default investment option, pension plan administrators should take into account either the general characteristics of the plan’s membership as a whole or the individual plan members whose accounts will be invested in the default investment option. The plan administrator should consider the following factors:

  • Age/risk profile of the pension plan membership;
  • General suitability of the default option for retirement savings purposes (i.e., it should offer long term appreciation and capital preservation by investing in a diversified mix of fixed income and equity investments and should balance the risk and rate of return considering the age and risk profile of the plan membership); and
  • Costs associated with the default option.

When selecting a default investment option, OSFI suggests that a money market fund may not be suitable as a default option as the low expected returns may prove to be inadequate to accumulate sufficient retirement income. It suggests the administrator consider either a balanced fund or a fund comprised of a portfolio of investments that takes into account the member’s age (i.e., a target date fund).

Documenting the selected default investment option

Although a federally regulated member choice DC pension plan is not required to have a statement of investment policies and procedures, OSFI recommends that the plan administrator:

  • Implement and adhere to policies and procedures respecting investment options (including the default investment option) offered to members; and
  • Document the process/rationale for selecting the default investment option.

Communicating the default investment option

OSFI advises plan administrators to pay attention to how the default investment option is described in communications to plan members. OSFI recommends that the description of the default investment option and its investment strategy should include the following:

  • The investment objective;
  • Type of investment and degree of associated risk;
  • Top ten holdings by market value;
  • Performance history;
  • A statement that its past performance is not necessarily an indication of its future performance;
  • The name and a description of the benchmark that best reflects the composition of the investment option;
  • The cost associated with the investment option, expressed as a percentage or a fixed amount; and
  • Target asset allocation.

Reviewing the default investment option

OSFI recommends that plan administrators review the default investment option on an ongoing basis. A review is especially important when certain events occur that could reasonably be expected to have an impact on the appropriateness of the default investment option. Such events could include:

  • A change in the age and risk profile of the pension plan membership;
  • Consistent overperformance or underperformance of the underlying funds used in the investment strategy
  • A change in the cost of the default investment option;
  • A change in the manager of the fund; and
  • Significant changes in financial markets or the economy.


Administrators of federally regulated member choice defined contribution pension plans should consider whether the pension plan’s default investment option and the administrator’s communications to members satisfy OSFI’s requirements. In addition, administrators should consider whether their procedures for selecting and reviewing default investment options are adequately documented and whether they take into account the factors recommended by OSFI.

News & Views - May 2018 (PDF)