Good pension governance about more than filling out legal papers, conference told

WINNIPEG — As pension plan sponsors consider the best approach to governance, it’s important to look beyond the basic legal requirements, participants at the Canadian Pension and Benefits Institute’s national forum heard on Wednesday.

Plan sponsors should consider going beyond the basic issues to more fully determine what they’re aiming to achieve, Eckler Ltd. principal Zaheed Jiwani said during a session at the annual event on Wednesday. Doing so is particularly important because pension plans are not only key to attracting and retaining good employees, they also help with workforce management when it comes to ensuring people are able to retire and younger employees can move up, Jiwani noted. Anxiety about financial issues is also a big source of employee stress and a drain on productivity, he added, citing statistics that suggest millennials can spend four hours a week at work worrying about money matters.

“So we need to have successful retirement programs,” Jiwani told the audience at a session on governance issues.

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When it comes to defined contribution pension plans, success is very much an individual matter, Jiwani noted. And taking a more individualized approach involves moving beyond the traditional focus on achieving a retirement income replacement rate of 70 per cent, he added. Instead, he suggested employers should incorporate the living standards replacement rate — a measurement pioneered by researcher Bonnie-Jeanne MacDonald — as a key way of assessing the success of their pension plans. Key to the living standards approach is actually looking at what people spend, rather than merely setting a standard income replacement goal for all, in order to determine how much they need in retirement. 

According to Jiwani, pension plans would do well to use their governance efforts to be specific about their core beliefs. And once they set out their goals more fully, it’s important to then measure their results against them on a regular basis. They can, for example, track the proportion of plan members who have a low or high chance of hitting their target and then assess how the results would change if they took certain actions, Jiwani noted. What would happen to plan members’ likely outcomes, for example, if the plan introduced mandatory contributions, changed the matching formula or introduced a new target-date fund?

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“From a governance perspective, governance isn’t just to check the box,” said Jiwani, noting what’s key is for plans to go beyond focusing on which legal papers they have to fill out in order to better understand what their target is.