New regulations and legislation around plan administration is changing the state of play for pension governance. It is no longer a nice to have; it’s mandatory. Without proper governance, plan administrators could face hefty fines or find themselves in hot water if they’re ever audited or sued.

On Tuesday, some 1,800 lawyers gathered at the Ontario Bar Association’s Institute 2016 in downtown Toronto (or joined live from across the province) to learn about the latest trends in law, including developments in pension plan governance.

Governance is important, said Mitch Frazer, partner and chair of the Pensions and Employment Practice with Torys LLP, because it ensures the plan is compliant with common law, relevant statutes and industry best practices —and shows there’s accountability in administering the plan.

“Policies should reflect what you do or are willing to do, and not what you think you should do or what you think you are doing,” added Tejash Modi, lawyer and principal at Morneau Shepell.

Plan administrators can be fined up to $250,000 for non-compliance. “The point is, governance has to be taken seriously,” he said.

In the federal realm, changes have been made to the Pensions Benefits Standards Act (1985), which includes new rules for member choice accounts; SIPP is no longer required.

In Alberta, regulations to the new Employment Pension Plans Act came into effect in 2014, while in B.C. regulations to the new Pension Benefits Standards Act came into effect in 2015. The legislation in these two provinces is similar, said Modi, with an emphasis on disclosure and modernization.

Read: Is your pension plan compliant with B.C.’s new PBSA?

In Quebec, details of a funding policy will be prescribed by regulation (which is to be released). And in Ontario, a Ministry of Finance consultation paper has laid the groundwork for regulatory reform for target benefit multi-employer pension plans.

Read: New pension funding rules in Quebec

“Delegation is often mentioned as one element of pension plans, as if it’s somehow optional,” said Lousie J.A. Greig, associate general counsel at OPTrust.

But delegation is essential in pension plan governance because — whether in the public or private sector — boards typically don’t have the time or expertise to carry out all of the functions associated with administering the plan.

Section 22 of Ontario’s Pension Benefits Act (PBA) authorizes the administration to delegate some or all of its responsibilities to a service provider or advisor, provided it selects them personally and supervises them appropriately.

“In my view, the issue of delegation raises fundamental questions about the role of the pension plan administrator,” said Greig. The goal is no longer about putting in place a board of pension experts; the board is instead viewed as a consumer of expertise, with the necessary skill sets to recruit expert advice from industry consultants and financial service providers.

Read: Employers gearing up for new environmental, social requirements in 2016

Another game-changer is the provision for advisory committees. Section 24 of the PBA provides that active and retired members of a pension plan can establish an advisory committee by a majority vote. This committee is able to monitor the administration of the plan, make recommendations and promote awareness among members, though it has no statutory authority to direct the administration or investment of a plan.

“For a pension to be really successful, [employees] have to have an understanding of what they actually have,” said Frazer. “The greatest problem we’re seeing is people who come to rely on their pension plan as their only form of retirement.”

An advisory committee is a way to engage members, and reflective of a growing trend to give members more of a voice in plan governance — and, ultimately, help them better prepare for their retirement goals.

Read: Legislative round-up: pension dates for 2016

 

Copyright © 2018 Transcontinental Media G.P. Originally published on benefitscanada.com

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