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© Copyright 2000 Rogers Media. The following article first appeared in the July 2001 edition of
BENEFITS CANADA magazine.
The evolution of governance
CAPSA's paper on pension governance is intended to help plan administrators. But is it another step
towards mandating minimum standards?
By Paul Litner
The Canadian Association of Pension Supervisory Authorities (CAPSA) released a draft consultation
paper--the CAPSA Pension Governance Guideline and Implementation Tool--for industry comment on May 25,
2001. It is CAPSA's intention that the guideline will form the basis for harmonized rules for pension plan
governance across Canadian jurisdictions.
Although this is CAPSA's first foray into the subject of governance, reports outlining governance
principles and best practices are not new.
The CAPSA guideline is the most ambitious attempt yet to articulate good governance principles as they
apply to pension plans--13 separate "good governance" principles are identified, with explanatory notes and
examples, including:
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There should be clear delineation and documentation of roles, responsibilities and accountabilities of
all participants in the governance structure. The guideline goes on to explain that the governance
structure (i.e. the chain of delegation) includes three distinct roles: the governance role (setting
the plan's objectives, policies and strategy); the management role (supporting the governing body and
developing operational plans for staff and others); and the operating role (implementation of the
objectives, policies and strategy on a day-to-day basis). Even where these roles are all performed by
the same person (typically for smaller plans) there must be a clear understanding of the different
responsibilities associated with each role.
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The governing body must fulfil its fiduciary responsibilities to plan members and beneficiaries. A
specific area of concern under this principle is with respect to employers or unions acting as the
governing body--where it is noted that conflicts may arise in areas such as payment of sponsor expenses
from the fund, ownership of surplus and plan mergers and conversions.
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Members of the governing body should be provided with appropriate training and ongoing education--all
towards the goal of ensuring that they have (or acquire) the knowledge and skills required to make
informed decisions.
GOING TOO FAR
While helpful in the specific direction and examples provided, there is a danger that these principles may
go too far in some cases. Some of the more debatable aspects of the guideline include:
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Its failure to recognize that employers also play a non-fiduciary role in relation to pension
plans--that of plan sponsor--where it is perfectly legitimate for them to pursue their own best
interests. Stating that a decision to effect a plan merger or conversion may constitute a conflict of
interest to an employer fails to recognize that separate role.
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The principle dealing with training and education for members of the governing body appears to suggest
a minimum competency or qualification requirement--unlike trust law, for example, which does not
require professional or expert trustees.
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The principle dealing with open communications states that plan members have a right to voice their
concerns and have them appropriately addressed in a timely fashion. This is arguably inconsistent with
the law of fiduciary duties, which has never required that a fiduciary submit to "mob rule."
Aside from specific comments, the real problem with such "best practices" guidelines is that they can
quickly become legal minimum standards.
Once various regulators adopt this guideline, comparing a plan's governance structure to the principles of
the guideline will become a regulatory expectation. And since the guideline will be evidence of what is
prudent and reasonable in respect of pension governance, it could also form part of an administrator's
statutory duty of care.
Comments on the draft CAPSA Governance Guideline are to be made by July 31, 2001.
Paul Litner is a partner in the pension and benefits department at Osler, Hoskin & Harcourt LLP in
Toronto.
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