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Normandin Beaudry

The latest pension plan governance guidelines

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There, in black and white

Bulletin NB Vol. 7 N. 19, November 2004

On October 25, the Canadian Association of Pension Supervisory Authorities (CAPSA) issued the final version of its governance guidelines for registered pension plans. Unlike the guidelines for capital accumulation plans (CAPs) issued by the Joint Forum of Financial Market Regulators on May 28, 2004 (see our June 2004 bulletin, Vol. 7, No. 11) that concerned only CAPs, including defined contribution plans with investment options, the latest guidelines also apply to defined contribution plans without investment options and to defined benefit plans.

Purpose of the guidelines

The guidelines are meant to be a guide to the best practices in terms of governance for registered pension plans. They are also meant to help plan administrators meet their governance responsibilities.

Governance is defined as the structure and processes for overseeing, managing and administering a pension plan to ensure that fiduciary obligations are met.

Summary of the guidelines

The guidelines are based on eleven principles which aim at establishing a good and effective system of governance. These principles include the following: 

  • Describe the plan administrator’s fiduciary obligations and the roles and responsibilities of all stakeholders.
    To avoid conflicts of interest, the roles and responsibilities of stakeholders that have other responsibilities and interests must be clearly defined.  
  • Establish performance measures for the various stakeholders and evaluate them.
    The plan administrator should regularly evaluate the performance of all the plan’s service providers.
  • Establish an internal control framework, commensurate with the type and size of the plan, to manage risk.
    The administrator should establish procedures to reduce the different types of risks that might affect the plan and to be ready to react if certain situations arise, for example, with respect to funding the plan, administration, communications, controlling expenses, etc.
  • Establish procedures and a process for communicating with plan members and the various stakeholders.
    The administrator should take the necessary steps to report on its administration to plan members and should adopt a communication policy that promotes transparency and members’ confidence.

Impact on your plans

For plans registered outside Quebec, the guidelines provide a framework and define what should constitute good governance in situations where provincial laws leave more leeway in regards to interpretation and good governance practices.

For plans registered in Quebec, the provincial legislation already incorporates some of the concepts in the guidelines, for example, the idea of having a pension committee, annual meeting and conflict of interest policy. However, the guidelines add some aspects of governance that were not explicitly required for pension committees, for example, having an internal control framework for managing risk that is commensurate with the type and size of the plan.

Effective date

Although there is no official date by which the guidelines must be applied, CAPSA encourages administrators to implement them immediately. Administrators can also complete the self-assessment questionnaire developed by CAPSA and included with the guidelines to determine how successfully their plan follows effective governance principles. Thereafter, plan administrators should review regularly their practices and procedures in order to assess them with the stated governance objectives.

Finally, although the guidelines do not have the force of law and their application is voluntary, it is probable that the courts will refer to them in any legal dispute regarding good governance of a pension plan. 

 

Please feel free to contact us for additional information.

514.285.1122
 
630, René-Lévesque Blvd. West, 30th floor
Montreal, Quebec, H3B 1S6