Tips for Meeting CAPSA’s Pension Governance Guidelines

As seen on Benefits Canada.

For any pension plan administrator looking for guidance around governance responsibilities, look no further than the Canadian Association of Pension Supervisory Authorities’ guideline No. 4.

The guideline, which was originally published in 2004, offers a principles-based approach, recognizing there’s no one-size-fits-all solution to governance and leaving implementation up to the plan administrator. The guideline and its accompanying self-assessment questionnaire were republished about a year ago, putting further emphasis on the obligation to document. So it’s a good time for plan administrators to revisit these governance guidelines.

Principle 1: Fiduciary responsibility

The first principle states that plan administrators have a fiduciary responsibility to the plan members and beneficiaries.

Good governance involves defining expectations, documenting processes and verifying the results. Plan administrators should ensure that participants in the governance framework understand their fiduciary duties; written processes are in place to meet these fiduciary duties; and documented evidence exists to substantiate that fiduciary duties are being met.

Plan administrators can develop orientation programs for new directors, trustees, committee members and staff to educate them on the role of fiduciaries and the nature of these duties. Participants should understand the specific aspects of their plan that result in a fiduciary relationship. For organizations or individuals that wear multiple hats, it’s critical to understand which roles and responsibilities are fiduciary in nature and which aren’t. (Hint: plan sponsors can sometimes act in their own best interests but the plan administrator role is fiduciary).

Organizations may wish to also have fiduciaries periodically sign a declaration acknowledging they understand their responsibilities.

Principle 2: Governance framework

The second principle recommends that plan administrators establish and document a governance framework for the administration of the plan. The governance framework simply describes how the plan administrator organizes itself in overseeing the plan. Having an established framework promotes a structured approach and reduces the likelihood of ad-hoc governance. Plan administrators more often fall short on documenting the framework.

A commonly applied structure is for organizations to delegate certain responsibilities to a pension or retirement plan committee. Considerations to be addressed when setting up an effective committee include:

  • Membership composition;
  • Procedures addressing the addition of new members and member turnover;
  • Responsibilities of the chairperson (i.e., setting the agenda);
  • Its autonomy for making decisions or recommendations;
  • Decision-making and voting procedures (i.e., unanimous versus majority rule, quorum, etc.);
  • Frequency of meetings; and
  • Reporting obligations and procedures.
  • Ultimately, the right structure will depend on the specific circumstances and resources of the organization and its plan or plans.

    Written policies, procedures and processes support the governance apparatus by demonstrating how the responsibilities are expected to be met. The Canadian Association of Pension Supervisory Authorities suggests creating and maintaining an electronic governance binder to store these policies along with other plan-related materials.

    Some examples of topics that could be addressed by written policies and procedures — and which pension regulators sometimes request to examine — include:

  • Selecting and monitoring service providers;
  • Selecting and monitoring investment funds;
  • Continuing education and training;
  • Implementation of regulatory changes;
  • Record retention;
  • Conflicts of interest;
  • Addressing member inquiries or complaints; and
  • Contribution delinquencies.
  • Principle 3: Roles and responsibilities

    The third principle recommends that the roles, responsibilities and accountabilities of all participants in the governance process are clearly described and documented. Naturally, this can be outlined in the governance policy document, which is a legal requirement in British Columbia and Alberta and will soon be mandatory in Ontario. Plan administrators in these jurisdictions will also need to ensure they cover other content requirements prescribed by applicable pension legislation. The governance policy document should be readily available to all participants in the governance process and reviewed regularly.

    Careful consideration should be given to the assignment of responsibilities. It’s unreasonable to expect board members and executives to be bogged down in the day-to-day operations of the plan. At the other extreme, a wholesale delegation of oversight responsibilities isn’t appropriate either.

    The responsibilities of the plan sponsor and plan administrator roles should be clearly distinguished. That way, participants in the governance process will understand which hat they’re wearing when carrying out their assigned responsibilities.

    Following a governance checklist or tracking sheet throughout the year will help ensure responsibilities aren’t overlooked.

    Read the fourth and fifth principle on Benefits Canada and stay tuned for the next article, which will discuss principles 6 - 10.