Pension governance is the system of structures and processes implemented to ensure both the compliance with laws and the effective and efficient administration and investment of the pension plan and fund. Sound pension governance is an obvious goal of any pension administrator. Of course, the governance structure that is appropriate for a given organization will vary depending upon factors such as the size of the organization, who the administrator is, the nature of the plan, whether there is a pension committee, etc.

Governance guidelines generally provide broad statements of principle. The Canadian Association of Pension Supervisory Authorities’ (CAPSA)Pension Plan Governance Guidelines, which should be adhered to by any administrator, provide for 11 principles of good governance. But there are five key pension governance considerations that need to be made if pension governance is to be carried out according to plan: who is responsible for what; how is performance measured; information access; risk management/conflicts; and review and update.

The administrator(often the employer)is generally responsible for the administration and investment of the pension plan and fund in accordance with applicable pension laws and the plan documents. The administrator is generally a fiduciary and therefore the common law fiduciary duties apply to them, including the duty not to delegate decisionmaking power. However, it is clearly appropriate in some circumstances for the administrator to delegate certain operational management tasks. Where the administrator does delegate, they must ensure that they prudently select their delegates and oversee them.

As the administrator is responsible for compliance withapplicable laws, they must ensure that they keep abreast of the current state of the legislation, any administrative policies of governing bodies and any recent case law that may affect the administration of the pension plan.

Proper governance involves setting out and documenting the various roles and responsibilities of all the participants in the administration of the pension plan. This can be done in the form of a matrix outlining the various participants and their respective roles and responsibilities.

It is important for the administrator to allocate responsibility for all components of the pension governance process and for each party to understand the responsibilities allocated to them. The administrator must also ensure that any person involved in the administration or investment of the pension plan or fund has(or acquires)the knowledge and skills appropriate for his or her role.

With respect to allocation of responsibilities, administrators should consider the following:
• determine and document the various components of plan administration to which responsibility must be allocated(e.g., plan design and amendments, compliance with laws, funding, administration, investment, communication);
• determine and document who is responsible for what components;
• determine and document the chain of delegation;
• circulate to all participants in the pension governance process the components, responsibilities and reporting relationships;
• provide ongoing training and education to ensure that any person involved in the administration or investment of the pension plan or fund has(or acquires)the knowledge and skills appropriate for his or her role; and
• regularly review the assigned roles and responsibilities and update as required.

Sound governance practice includes monitoring and assessing both the performance of the governance process and the participants in the process. In terms of governance, the administrator should establish and document governance objectives for the plan and have a method for following up to ensure the objectives are met. Governance objectives generally provide the goals for the administration of the plan and may include:
• making all contributions and paying all benefits in a timely manner;
• performing internal self-assessments of the organization’s pension governance at regular intervals(e.g., at least once per year);
• documenting all key decisions;
• communicating all relevant information to members in a timely manner; and
• having an external governance audit performed on the pension plan at regular set intervals(e.g., at least once every five years).

Once the administrator has identified and documented the governance objectives for the pension plan, they should follow up on a pre-set, regular basis to ensure that the established objectives are being met and determine whether the objectives need to be modified.

With respect to the participants in the governance process, the administrator should clearly set out performance measures to assess them, which will vary depending upon the specific participant. There needs to be ongoing monitoring of the performance of the participants by the administrator; if performance is not meeting expectations, the administrator needs to have in place a system for training, educating or otherwise correcting inadequate performance.

A steady flow of information regarding the organization’s pension governance structure and processes will help to promote accountability. Accordingly, the governance process should be communicated to members and any other stakeholders. In addition, as part of the governance process, a communication policy for the pension plan should be established which will set out what information will be disclosed.

Consistent with the case law regarding member communications, any communications should be clear, accurate and understandable by the intended recipients. This disclosure would include anything required under applicable pension laws. In addition, the CAPSA Guidelines suggest appropriate disclosure to members regarding the benefits, risks and responsibilities of membership in the plan. It’s a good idea to augment communication required under applicable pension laws as well through:
• implementation of focus groups, Web-based or paper surveys in order to obtain member feedback.
• regular newsletters to members.
• annual reports to members on pension governance.

In terms of oral communication to members, which also must be accurate and clear, it may be appropriate to designate one (or more, depending on the size of the organization)individual who is responsible for oral communications to members regarding the pension plan. In this way, the administrator can ensure that the person who will be providing information to members has had adequate training and education and is kept informed of regulatory and plan changes. This will help to ensure that consistent and accurate information is provided to members.

It is also important that the plan administrator and any delegates have access to any relevant information required in the administration and investment of the pension plan and fund. In this regard, it is crucial that there are adequate communication channels established among the participants in the governance process so they can properly perform their responsibilities.

There should be an internal structure in place to address the pension plan’s risks. The plan administrator should identify and document the risks associated with the plan and determine how these risks may be managed.

An internal code of conduct and conflicts of interest policy should also be established and communicated to all interested parties. These policies will generally apply to the administrator as well as any delegates. The conflicts of interest policy should clearly set out what must be done where a conflict of interest arises. In the pension context, conflicts of interest will often arise where the plan sponsor is also the administrator. The conflicts policy may specifically address this type of issue and set out how the party is expected to operate.

For example, it may require the party to identify and document the roles and responsibilities, legal, fiduciary and otherwise, associated with each role and how decisions are ultimately made. Disclosure to certain interested parties may also be mandated under the policy. The conflicts policy may also require the party to seek independent advice on the issue.

The expectation is there for pension plan administrators to implement good governance structures and processes. The administrator must regularly evaluate its plan governance to determine if the objectives set out are being attained and whether the structure and process continue to be appropriate.

The best place to start in reviewing and improving a plan’s governance is an overall audit of the current state of affairs. In order to ensure that the review is impartial, the administrator may wish to employ independent professional advice. Unfortunately, once new practices and policies are implemented, the governance job is not complete. Instead, they must be regularly monitored, assessed and updated, when required.

Good pension plan governance is a far cry from the theoretical parameters put forth by regulators. Instead, the CAPSA guidelines should be a guide to an all-encompassing process that involves rigorous monitoring—and ultimately reward.

Jana Steele is an attorney with Goodmans LLP in Toronto.