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A Guide to Pension Plan Governance
By Annette Dupré
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December 13, 2007 was
the deadline for pension funds in Québec to complete
a governance plan by establishing internal by-laws.1 An Act
to amend the Supplemental Pension Plans Act (“SPPA”)
had been enacted a year earlier, making such by-laws mandatory.
Pension funds are not small potatoes. According to Statistics
Canada, assets in supplemental pension plans amount to $966 billion,
with approximately 4.6 million workers contributing.
What are pension funds and how are they managed?
Pension funds are trusts whose assets are managed on a segregated
basis, i.e. apart from the assets of contributing employers.
Thus, in the event of insolvency, an employer can’t dip
into the pension fund, which ensures that the trust’s
assets are safeguarded.
In Québec, pension funds are managed by a pension committee,
which is both administrator and trustee.2 A pension committee
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| Annette Dupré,
manager, budgets and treasury for the City of Westmount and
secretary-treasurer of the pension committee |
usually has from seven
to nine members, including members designated by the employer,
the employees, the retirees, and sometimes the union. In other
provinces, pension fund trustees assume a role similar to that
of the pension committee.
Pension committee = Board of directors
A pension committee can be roughly compared to a board of directors.
As trustee for the pension fund, it must exercise prudence,
diligence and skill, and must also act in the best interests
of the plan members.3 Members of the pension committee are personally
and severally liable for any decisions made.
What the governance plan contains
The Government of Quebec, in order to improve pension plan governance,
requires that internal by-laws cover each of the following items:
- Duties and obligations of pension committee members
- A code of ethics
- Procedure for meetings, frequency of meetings and rules
governing the appointment of the chair, vice-chair and secretary
- Internal controls, risk management and measures to be
taken to provide professional development to committee members
- Books and registers to be kept
- Rules for selecting, remunerating, supervising and evaluating
service providers, delegatees and representatives, and
- Standards the committee is to meet, including those meant
to ensure good communication with plan members and beneficiaries
Why were pension committees required to adopt a governance
plan?
The Government of Québec wanted to provide pension
committee members with appropriate tools by specifying what
aspects of governance should be covered in the by-laws, thereby
assuming an educational role.
This was confirmed by René Beaudry, a partner in the
actuarial consulting firm of Normandin Beaudry: “Setting
up internal by-laws has proven to be an excellent educational
exercise for members of pension committees, many of whom aren’t
really experienced in corporate governance.”
Until now, the industry standard for pension plan governance
was provided by the guidelines of the Canadian Association
of Pension Supervisory Authorities (CAPSA). The SPPA goes
further than CAPSA by requiring committees to adopt specific
governance rules, rather than simply encouraging them to do
so.
Ontario is soon to follow
Ontario is revamping its own pension plan legislation. A commission
of experts will table its recommendations in October 2008.
J. David Vincent, a senior partner at Ogilvy Renault, thinks
that Ontario could implement a pension fund management structure
similar to that of pension committees in Québec, with
mandatory involvement of employees and retirees on the fiduciary
side of things.
There is little likelihood, though, that Ontario will follow
Québec in specifying what aspects of governance should
be covered. Since a pension fund is a trust, legislation and
legal precedents already require trustees to act with prudence,
diligence, skill, honesty, and loyalty.
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Québec
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Other provinces |
Mandatory governance rules
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Yes |
No |
Mandatory involvement of employee and retiree (or beneficiary)
representatives in the management of pension funds
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Yes |
No for single-employer plans.
Yes for multi-employer plans in Ontario.
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1Supplemental Pension Plans Act (SPPA), sec. 151.2. SPPA is
also designated R.S.Q., c. R-15.1. The Act to amend the SPPA
described in this article is also called Bill 30.
2SPPA, sec. 147 and 150.
3SPPA, sec. 151.
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Annette Dupré, CMA, MBA, is manager, budgets and treasury for
the City of Westmount and secretary-treasurer of the pension committee.
She received a bursary from the Collège des administrateurs
(College of Corporate Directors) to take a course titled “Pension
Plan Governance.” Ms. Dupré may be contacted at annette_dupre@yahoo.com.
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