In an effort to avoid possible regulation of pension plan governance, a national industry task force has developed voluntary principles for self-regulation.
Six broad-based principles blanket pension plan management and accountability to stakeholders, in addition to investment activities and performance.
The pension-industry task force, consisting of the Association of Canadian Pension Management, Pension Investment Association of Canada and the Office of the Superintendent of Financial Institutions Canada, developed the guidelines in response to concerns that regulatory bodies may lay down onerous regulations.
The concerns arose from a 1998 report by the Standing Senate Committee on Banking, Trade and Commerce urging the Canadian pension-plan industry to adopt best practices for pension plan governance.
While the senate committee recommended the industry turn to one of the different sets of guidelines offered by ACPM, PIAC and OSFI, the three groups banded together to form a standard set of governance principles. Until now, plan sponsors have developed their own guidelines in-house, used association guidelines or failed to follow any formal guidelines for pension plan governance. The task force is now urging all pension bodies to voluntarily apply the six principles.
“We all know that regulations are costly to pension plan sponsors and it can be cumbersome to administrators to meet regulatory requirements. We stepped back. We felt we could create a (self) governance structure where problems would be better safeguarded,” said Ronald Bergeron, senior director of OSFI, the body responsible for monitoring the governance practices of federally regulated pension plans.
OSFI’s leadership in developing the principles is unique and not without some influence since it’s a federal regulatory body working with industry on a non-regulatory approach for the industry.
It is uncertain if provincial regulatory bodies will jump on-board with the self-regulation approach to governance. Bergeron said the provinces are watching closely to see whether companies successfully adopt the voluntary governance principles.
“There is recognition that they are holding off writing regulations on pension governance to see what happens with the self-assessment.”
By urging self-regulation with use of the principles, and transparency of pension plan conditions, decisions and actions, the task force hopes regulators will not demand regular reporting. For its part, the OSFI is urging voluntary compliance with the principles among its plan sponsors. It has indicated its intention not to routinely request governance self-assessment results.
The Senate committee plans to hold hearings this year to determine whether governance regulations are needed, or whether voluntary efforts to adopt best practices are satisfactory. But the task force is hoping the Senate will put off its review until their initiative has had a chance to sink in. The task force intends to conduct a survey of participation results in 2002.
Among some of the six principles’ fiduciary accountabilities are: increased responsibilities for day-to-day administrators of pension plans, including the development of a code of conduct covering benefits administration, a definition of the responsibilities of those involved in the plan, including a reporting process, and quality communication to stakeholders.
Too often plan administrators are overwhelmed with legislative compliance and not nearly educated enough about the delivery and day-to-day administration of the plan, including responsibility to plan members, said Bruce Tollefson, manager of pension plan governance at KPMG Consultants LP in Toronto, and task force member.
“A lot of (internal) pension committees spend all their time on investments and no one asks about the administration. Committees should play a more active role in overseeing the administration. That’s not to say they are not doers,” added Tollefson.
To help with the voluntary self-regulation, the task force also developed a guide — consisting of a self-assessment questionnaire — for plan administrators. The questionnaire, to be completed annually by administrators, is based on the six governance principles and aims at providing a quick and simple indication of the general state of a plan’s governance.
“If we don’t take action then regulators might decide we could benefit from rules and regulations and those involved might find themselves saddled with a high level of regulation,” said Tollefson.
“From the trustee point of view, these (principles) allow them to prove they are in control of the plan and what they face in terms of liability,” he added.
The task force recognizes that there are differences among plans, but encourages plan sponsors to adopt those principles that best meet their particular needs and circumstances. The task force does not require sponsors to comply with all six principles, but it does expect them to provide their rationale for any they do not adopt.
While the recommendations are geared primarily toward registered pension plans, they address defined contribution plans and group registered retirement savings plans (RRSPs). The recommendations state sponsors tend to consider DCs a low-governance priority, but point out sponsors’ responsibilities, including offering an adequate package of options. They suggest that “governors should have a process for assuring themselves that such areas as plan administration, remittance of contributions and payment of benefits comply with applicable legislation and with the plan’s terms,” adding that group RRSPs should be governed by principles similar to DCs.
For more information, contact the Association of Canadian Pension Management at (416) 964-1260 or individual task force members’ Web sites, www.acpm.com, www.piacweb.org, or www.osfibsif.gc.ca.
SIDEBAR
Six governance principles
The task force leaves implementation of the six principles up to pension plan administrators, and suggests “the value of good governance comes from reflecting on each and taking a considered stance.” In the recommendations, the principles are explained further.
1. Pension plans should have a clear mission.
2. Pension plans have a primary fiduciary duty to plan beneficiaries.
3. Responsibilities/accountabilities should be allocated clearly in order to identify stakeholders and define roles.
4. Performance should be measured and reported.
5. The pension plan administrator should be qualified and knowledgeable.
6. Governance self-assessment (reviewed and modified over time and reported to stakeholders).
Six broad-based principles blanket pension plan management and accountability to stakeholders, in addition to investment activities and performance.
The pension-industry task force, consisting of the Association of Canadian Pension Management, Pension Investment Association of Canada and the Office of the Superintendent of Financial Institutions Canada, developed the guidelines in response to concerns that regulatory bodies may lay down onerous regulations.
The concerns arose from a 1998 report by the Standing Senate Committee on Banking, Trade and Commerce urging the Canadian pension-plan industry to adopt best practices for pension plan governance.
While the senate committee recommended the industry turn to one of the different sets of guidelines offered by ACPM, PIAC and OSFI, the three groups banded together to form a standard set of governance principles. Until now, plan sponsors have developed their own guidelines in-house, used association guidelines or failed to follow any formal guidelines for pension plan governance. The task force is now urging all pension bodies to voluntarily apply the six principles.
“We all know that regulations are costly to pension plan sponsors and it can be cumbersome to administrators to meet regulatory requirements. We stepped back. We felt we could create a (self) governance structure where problems would be better safeguarded,” said Ronald Bergeron, senior director of OSFI, the body responsible for monitoring the governance practices of federally regulated pension plans.
OSFI’s leadership in developing the principles is unique and not without some influence since it’s a federal regulatory body working with industry on a non-regulatory approach for the industry.
It is uncertain if provincial regulatory bodies will jump on-board with the self-regulation approach to governance. Bergeron said the provinces are watching closely to see whether companies successfully adopt the voluntary governance principles.
“There is recognition that they are holding off writing regulations on pension governance to see what happens with the self-assessment.”
By urging self-regulation with use of the principles, and transparency of pension plan conditions, decisions and actions, the task force hopes regulators will not demand regular reporting. For its part, the OSFI is urging voluntary compliance with the principles among its plan sponsors. It has indicated its intention not to routinely request governance self-assessment results.
The Senate committee plans to hold hearings this year to determine whether governance regulations are needed, or whether voluntary efforts to adopt best practices are satisfactory. But the task force is hoping the Senate will put off its review until their initiative has had a chance to sink in. The task force intends to conduct a survey of participation results in 2002.
Among some of the six principles’ fiduciary accountabilities are: increased responsibilities for day-to-day administrators of pension plans, including the development of a code of conduct covering benefits administration, a definition of the responsibilities of those involved in the plan, including a reporting process, and quality communication to stakeholders.
Too often plan administrators are overwhelmed with legislative compliance and not nearly educated enough about the delivery and day-to-day administration of the plan, including responsibility to plan members, said Bruce Tollefson, manager of pension plan governance at KPMG Consultants LP in Toronto, and task force member.
“A lot of (internal) pension committees spend all their time on investments and no one asks about the administration. Committees should play a more active role in overseeing the administration. That’s not to say they are not doers,” added Tollefson.
To help with the voluntary self-regulation, the task force also developed a guide — consisting of a self-assessment questionnaire — for plan administrators. The questionnaire, to be completed annually by administrators, is based on the six governance principles and aims at providing a quick and simple indication of the general state of a plan’s governance.
“If we don’t take action then regulators might decide we could benefit from rules and regulations and those involved might find themselves saddled with a high level of regulation,” said Tollefson.
“From the trustee point of view, these (principles) allow them to prove they are in control of the plan and what they face in terms of liability,” he added.
The task force recognizes that there are differences among plans, but encourages plan sponsors to adopt those principles that best meet their particular needs and circumstances. The task force does not require sponsors to comply with all six principles, but it does expect them to provide their rationale for any they do not adopt.
While the recommendations are geared primarily toward registered pension plans, they address defined contribution plans and group registered retirement savings plans (RRSPs). The recommendations state sponsors tend to consider DCs a low-governance priority, but point out sponsors’ responsibilities, including offering an adequate package of options. They suggest that “governors should have a process for assuring themselves that such areas as plan administration, remittance of contributions and payment of benefits comply with applicable legislation and with the plan’s terms,” adding that group RRSPs should be governed by principles similar to DCs.
For more information, contact the Association of Canadian Pension Management at (416) 964-1260 or individual task force members’ Web sites, www.acpm.com, www.piacweb.org, or www.osfibsif.gc.ca.
SIDEBAR
Six governance principles
The task force leaves implementation of the six principles up to pension plan administrators, and suggests “the value of good governance comes from reflecting on each and taking a considered stance.” In the recommendations, the principles are explained further.
1. Pension plans should have a clear mission.
2. Pension plans have a primary fiduciary duty to plan beneficiaries.
3. Responsibilities/accountabilities should be allocated clearly in order to identify stakeholders and define roles.
4. Performance should be measured and reported.
5. The pension plan administrator should be qualified and knowledgeable.
6. Governance self-assessment (reviewed and modified over time and reported to stakeholders).
