CAPSA Guideline No. 10 for risk management for plan administrators

On September 9, 2024, the Canadian Association of Pension Supervisory Authorities (CAPSA) released two new guidelines for pension and group savings plan administrators and sponsors: Guideline No. 10 for risk management for plan administrators and Guideline No. 3 for capital accumulation plans. As a reminder, CAPSA is an association of pension regulators for provincial and federal plans whose mission is to promote the establishment of an efficient and effective pension regulatory system in Canada.

CAPSA’s Guideline No. 10 defines the key elements of a pension plan risk management framework. It is intended for administrators of defined benefit, defined contribution, pooled registered, target benefit and hybrid pension plans. Its objective is to support pension plan administrators in fulfilling their fiduciary duty and in complying with the standard of care prescribed by the legislation.

Guideline No. 10 specifies that pension plan administrators should adopt a risk management framework to identify, evaluate, manage, and monitor material risks. For each of these steps, it presents considerations that can be used to develop a robust, effective risk management framework that is adapted to the plan’s characteristics. According to the guideline, we can expect pension regulators to periodically review the risk management framework set up by a plan administrator.

In addition, the guideline places particular emphasis on managing certain specific risks:

• Use of third parties: The use of service providers and agents does not relieve administrators of their fiduciary duties, and administrators must be sure to conduct informed and thorough oversight of these third parties.
• Cybersecurity: Administrators need to understand, monitor and actively manage this risk. The guideline provides several examples, tools and considerations for integrating cyber risk management.
• Investment risk governance: The guideline provides information on several of the more widely used investment risk management practices, placing particular emphasis on considerations related to investments in alternative assets.
• Environmental, social and governance (ESG) issues: Administrators must determine the extent to which information on ESG issues should be integrated into the assessment of a pension fund’s risk/return profile and adapt their risk management framework accordingly.
• Use of leverage in investment strategies: Leverage increases exposure to certain investment-related risks and therefore requires special attention. The use of leverage requires a good understanding of the associated risks and appropriate monitoring.

Currently, there is a disparity between plan administrators when it comes to risk management processes. With the publication of this new guideline, administrators will be strongly encouraged to review their risk management framework in order to ensure that they are properly fulfilling their fiduciary duty.

Here are a few steps that could help administrators with this review:

1. Training: Learn about legislative requirements, guidelines and current practices related to managing the risks faced by their plan
2. Development: Elaborate an official risk management framework and document it
3. Implementation: Initiate required operational, technological or administrative changes
4. Continuous review and monitoring: Develop periodic monitoring processes and identify mechanisms to monitor emerging risk

The Office of the Superintendent of Financial Institutions (OSFI) has already informed federal pension plan administrators that it expects them to follow the guideline (consult the Letter to administrators of federally regulated pension plans for more information). Other provincial regulatory organizations can be expected to follow suit or to refer to the guideline’s recommendations in their next publications.

2025 will be the year of risk management. Normandin Beaudry’s experts will offer you a concrete approach to optimizing your risk management framework. Would you like more information on one of these topics? Contact your Normandin Beaudry consultant or email us.