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September 2022

Good governance and pension plans: Takeaways from the pandemic

COVID-19 forced pension plan administrators to swiftly change their ways of doing things. From communications to financial analysis, pension plans have evolved and adapted. Now, more than two years later, the return to a “new normal” does not have to mean going back to our old ways. In light of the lessons learned from the pandemic, we must now decide which path to pursue. Here are some best practices for pension plan administrators to keep in mind.

Communicating with plan members

Social distancing increased the need to prioritize electronic communication methods, which are more efficient and convenient than paper communications. Unless otherwise specified, electronic communications are just as valid as traditional communications. Here are some considerations to keep in mind when choosing the format for communicating with plan members:

Best practice: Review and update your communication tools, especially if you decide to go digital. This is an opportunity to provide members with clear and interesting content better suited to their needs. It is also important to ensure compliance with applicable policies.

Meetings – Virtual, in-person, or both?

Annual meetings, pension committees, pre-retirement workshops were all held virtually out of necessity during the pandemic. However, moving forward, consider the format that will encourage attendance and participation:

  • Virtual: convenient and accessible for some.
  • In-person: a social experience that promotes engagement and makes it easier to gauge your audience’s level of understanding.
  • Hybrid: a flexible solution that can reach more people but may be harder to facilitate or inappropriate for some meetings. If this solution doesn’t suit your needs, consider holding two separate meetings: a virtual session and another one in person.

Best practice: When determining your meeting format, consider different factors such as meeting agenda, number of attendees, meeting frequency, attendees’ location, and language. You should also check your internal policies and applicable regulations to ensure that virtual or hybrid meetings are permitted and suitable (e.g., in certain cases where a vote is required). If not, consider amending internal policies to fit your new needs and practices.

Certificate of existence

Periodically sending certificates of existence to annuitants is a best practice, one which was postponed or modified during the pandemic. Modifications included:

  • Accepting calls as an alternative to returning the form
  • Accepting forms by email
  • Waiving the need for a witness’s signature

As we move forward, consider the needs of the people you are communicating with. For instance, if only some annuitants have access to the Internet, email may not be a viable option. Traditional mail was at times a challenge during the pandemic, and, as such, you should provide a variety of options to verify that your members are still alive.

Best practice: If it has been more than three years since you last issued certificates of existence, you should consider starting the survival verification process now, especially if an actuarial valuation or annuity purchase is right around the corner. Updating your annuitant database could result in additional savings for your plan. For insured pensions, most contracts require the plan administrator to issue certificates of existence at a pre-determined frequency.

Establishing the solvency ratio more regularly – Plans registered in Quebec

Defined benefits plans registered in Quebec can now establish the solvency ratio used for the payment of benefits to members more frequently than once a year. This new measure is pursuant to the temporary easing measures that Retraite Québec put in place during the pandemic, which required a monthly update to the solvency ratio.

Best practice: Ask yourself about the frequency for establishing the solvency ratio (monthly, quarterly, biannually or annually) that would be most appropriate for your plan. Here are some elements to consider:

  • Improved equity among members through more frequent updates to the ratio, as benefits paid more accurately reflect the plan’s financial situation.
  • When markets are more volatile, more frequent updates are more appropriate. We’re seeing more and more administrators choosing quarterly update, which is an excellent compromise for member equity.
  • Tools and processes to carry out monthly estimates are already in place.
  • It is also possible to calculate the solvency ratio only when the benefits of a member must be established.
Financial health monitoring

Given the market volatility as a result of the pandemic, many administrators have been more frequently monitoring their plan’s financial situation, both on a going concern and on a solvency basis. One can only obtain a full picture of the plan’s situation by analyzing the pension fund’s returns, the changes in the actuarial liabilities as well as the funding mechanisms. Simply monitoring the fund’s returns isn’t enough to know about the plan’s financial health.

Best practice: More frequent analysis of the financial situation fosters better strategic decisions regarding funding and risk management. However, this practice can highlight market volatility. Therefore, it’s important to remain calm and continue to apply pre-established funding and investment principles.

Maintaining sound governance adapted to the new post-pandemic reality is essential. Be proactive and seek out the best governance practices for your plan.

Contact your Normandin Beaudry consultant or email us should you require assistance.

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