Tips for meeting CAPSA’s pension governance guidelines: Part II

This series of articles examines some actionable ideas to help plan administrators meet the Canadian Association of Pension Supervisory Authorities’ guideline No. 4. Following on from the previous article, which looked at the first five principles of this guideline, this one will cover the next five principles around pension governance.

Principle 6: Governance information

The sixth principle recommends that plan administrators establish and document a process to obtain and provide to governance participants appropriate information to meet their fiduciary and other responsibilities.

Read: Tips for meeting CAPSA’s pension governance guidelines

Since pension plans amass a lot of documentation, keeping an inventory of the key documents that support the plan can help governance participants stay organized. As well, providing a secure online portal to these participants offers a centralized location to store all of the plan’s vital information. Pension regulators also strongly encourage the adoption of record retention policies that specify the types of documents the plan will store along with their retention period. And archived meeting materials, including the minutes and documents used to support past decisions, help to promote institutional memory of the plan.

Principle 7: Risk management

The seventh principle recommends that plan administrators establish and document a framework and ongoing processes to identify and manage the plan’s risks.

Many plan administrators already have some sort of framework in place for monitoring risks through their ongoing governance activities. However, the theme of these principles, and good governance in general, is the necessity to document the process.

The use of a risk register can help facilitate a more structured approach to the risk management activities. It’s a tool that simply documents the identified risks faced by the plan, the processes in place for monitoring those risks, the risk management and mitigation strategies and the assignment of responsibilities related to the risk monitoring and management activities.

Read: Pension association calls for flexibility and clarity in CAPSA governance guidelines

Risk management is an ongoing process that continues with the life of the plan. As such, the risk register is a living document that should be periodically revisited. Developing and reviewing the risk register shouldn’t turn into a box-ticking exercise; it should help facilitate discussion among governance participants.

As well, the tool can be used to demonstrate to stakeholders the risk management practices of the plan.

Principle 8: Oversight and compliance

The eighth principle recommends that plan administrators establish and document processes to ensure they’re compliant with legislative requirements and pension plan documents.

The first step is understanding the applicable legislative requirements. Pension law in Canada and across its various jurisdictions has undergone numerous reforms over the years, so staying on top of the evolving requirements is a challenge in itself. However, ignorance of the law isn’t a defence for failing to comply.

Many Canadian pension law firms publish articles or blog posts on their websites summarizing new and potential changes and the impact on plan administrators. Federal and provincial pension regulators’ websites are another resource in this area. Also, plan administrators can engage service providers, such as consultants, actuaries, record keepers and lawyers to keep them abreast of ongoing developments.

Monitoring the compliance with these requirements should be a standing item on pension meeting agendas. It can be important to have written confirmation down the road when compliance needs to be demonstrated to auditors, regulators, board members, plan members or other stakeholders.

Read: Top 50 DC Plans Report: A look at the latest governance trends

At least annually, plan administrators should confirm that the plan is being administered in accordance with the provisions of the plan text. Some common landmines with respect to not following the plan text include: misinterpreting the definition of earnings (i.e., failing to include or exclude bonuses, overtime, shift premiums, special payments, etc.); breakdowns in the enrolment process of eligible employees; and programming errors with the payroll administrative systems.

Principle 9: Transparency and accountability

The ninth principle recommends that plan administrators establish and document a communication process with the aim to be transparent and accountable to plan members, beneficiaries and other stakeholders.

An annual communication to employees that outlines the plan’s governance framework and annual oversight activities not only increases the transparency around its governance, but can also put members at ease knowing their retirement program is in good hands. Further, plan administrators that put the time, resources and effort into the governance of their plans deserve to take credit for doing so.

The communication can also serve to remind employees about their ongoing responsibilities as a member, how to enrol if they’re eligible but haven’t done so,and who to contact with plan-related questions.

Reporting on the plan’s ongoing governance activities should also be of interest to an organization’s board of directors or executive team that has delegated certain functions to committees and staff.

Principle 10: Code of conduct and conflict of interest

This principle states that plan administrators should establish and document a code of conduct, incorporating a policy to manage conflicts of interest.

The CFA Institute has published a code of conduct for members of a pension governing body that plan administrators can adopt for their programs. It can be included in the on-boarding materials for new members to the governance body and can be revisited periodically.

Read: Regulators turning their attention to DC plan rules

While it addresses conflicts of interest, plan administrators may wish to develop procedures around governance participants declaring real or perceived conflicts of interest and how such conflicts are to be managed.

The final article in this series will look at governance principle 11: Governance review