The Canadian Association of Pension Supervisory Authorities (CAPSA) has been working away at providing pension plan administrators with guidance regarding pension plan investing and funding. As we reported earlier, CAPSA released draft guidelines this past spring. Those guidelines were released on November 15, 2011 in final form: Guideline No.6 – Pension Plan Prudent Investment Practices Guideline (the Investment Guideline) and Guideline No.7 – Pension Plan Funding Policy Guideline (the Funding Policy Guideline).

These guidelines are intended to build on the principles of pension plan governance established by CAPSA Guideline No.4 – Pension Plan Governance Guideline.

Pension Plan Prudent Investment Practices Guideline

The Investment Guideline is designed to help administrators demonstrate the application of prudence to the investment of pension plan assets. It sets out a number of prudent investment principles including the Prudent Person Rule which it describes as “a substantive rule of law that is intended to lead to balanced decision making, rather than dictate particular outcomes.”

The Guideline emphasizes the importance of communications with plan members especially when they have responsibility for making investment decisions For example, members of capital accumulation plans (CAP) should be provided with sufficient details about plan investment options to enable them to make informed investment decisions. For more detailed guidance on plan communications, administrators of CAPs should also refer to Guideline No. 3 for Capital Accumulation Plans.

In connection with the Investment Guideline, CAPSA has also developed a Self-Assessment Questionnaire for plan administrators. The Questionnaire asks plan administrators to review their plan’s investment practices and consider a number of issues/activities when determining whether they are investing prudently, including:

  • The roles and responsibilities of the plan administrator, the plan sponsor and their delegates, including responsibility for establishing the investment policy.
  • The plan’s investment objectives, risks and corresponding risk management practices, and Statement of Investment Policies & Procedures.
  • The delegation of investment activities, and the parties responsible for continuing to monitor and review such activities.

Pension Plan Funding Policy Guideline

The Funding Policy Guideline provides guidance on the development and adoption of written funding policies for defined benefit pension plans. It provides a list of issues that a funding policy should address, including:

  • An overview of the plan’s features.
  • The plan’s funding objectives and how they integrate with the plan’s investment policy.
  • Any funding risks faced by the plan and the plan’s tolerance for volatility in funding requirements.
  • Funding and contribution target levels, and cost-sharing arrangements (if any).
  • A description of how any funding excesses will be utilized.
  • Any guidance for the plan actuary in selecting actuarial methods and assumptions, and the frequency of actuarial valuations (subject to any legislative requirements).
  • Responsibility for monitoring the funding policy.
  • Communication regarding the funding policy with plan members.

The Funding Policy Guideline also recognizes that different considerations may apply to multi-employer pension plans (MEPPs) – as compared to single employer plans – given that administrators of MEPPs have the option of altering benefit levels.

Practical Implications

While CAPSA guidelines do not have the force of law, plan administrators would be best advised to review their pension plan governance and investment structures with the requirements of the Investment and Funding Policy Guidelines in mind.