Compliance: Avoid Pension Pain

We hope you liked our first video in our Proteus Viewpoint video series, Compliance: Avoid Pension Pain.

For further information on compliance, read on!

What does compliance mean when it comes to pension plans?

When we talk about pension plan compliance with plan sponsors, it often comes down to a few things:

1. Identifying and recording what the plan needs to be compliant with;
2. Creating a process to adhere to the rules based on best practices; and
3. Measuring the level of compliance that the ongoing process is achieving.

How do you identify what we need to be compliant with?

It’s important to understand that the pension plan is subject to the specific pension legislation of the province it is registered under. Along with province legislation, plan members must also be compliant with the Income Tax Act and the Canadian Association of Pension Supervisory Authorities (CAPSA) Guidelines.

How do you adhere to and track compliance?

Adhering to and tracking compliance comes down to how the process is set up. It’s a good idea to develop a system of mechanisms to ensure the plan is adhering to the rules and to track ongoing compliance regulations. This is an important aspect of pension plan governance and is becoming increasingly important in defined contribution (DC) pension plans, as the investment risk is passed on to plan members.

What results in following best practices?

By following best practices when it comes to compliance, plan sponsors can increase their transparency, making sure those working with the plan understand their roles and responsibilities. An important by-product of having best practices for compliance is that if something were to go wrong within the plan, there is documentation to support how the plan has been governed and demonstrates the way compliance has been achieved. This in turn demonstrates how the plan’s governing body has satisfied its due diligence and fiduciary duties to the plan beneficiaries.

What are best practices?

The Office of the Superintendent of Financial Institutions (OFSI) and the Pension Investment Association fo Canada (PIAC) have both played key roles in ensuring that high standard of pension fund governance and guidelines in Canada are brought to the forefront.

The guidelines that OFSI and PIAC have created describe best practices for the governance of pension plans, as well as the responsibilities of plan administrators.

Best practices, as outlined by these institutions include:

- Clearly stated objectives
- Independence
- Separation of governance from administrative operations
- Clearly defined roles and responsibilities
- Delegation of tasks
- Ensuring pension committee effectiveness
- Accountability, internal controls, performance measurement and reporting
- Risk identification and mitigation
- Adequate knowledge and skill sets
- Due diligence in decisions and the supervision of delegated work
- Controls for the expenses and conflicts of interest
- A code of ethics
- Transparency and full disclosure
- A process of governance self-assessment

What is one of the main priorities for staying compliant?

One of the main priorities for staying compliant is establishing clear, written documentation of governance roles and responsibilities. This helps ensure that best practices outlined above are adhered to, and allow the administrator to assess the plan’s governance on a regular basis and to ensure that these practices are being followed – providing greater transparency and performance.

What are defined contribution plans also aided by?

If you are the plan sponsor of a DC pension plan, then along with the legislation, your governance should be guided by the Joint Forum of Financial Market Regulators’ Guidelines for Capital Accumulation Plans, known as the CAP Guidelines. While the guidelines are voluntary, they do help define best practices, and are an important tool in demonstrating the due diligence and governance process set in place.

How do I know if I’m in compliance?

There is not one agreed upon way or system used to track compliance. There isn’t even an agreed upon list of expectations. It is up to the plan sponsor to develop expectations and a way to track the plan’s compliance with the expectations. Given the ‘open for interpretation’ nature of it all, we often default to a conservative interpretation. We look to set expectations with our clients that meet and push industry norms.

To find out if your pension plan is in compliance, talk to your Proteus consultant about establishing a governance report and compliance tracking checklist.