The Canadian Association of Pension Supervisory Authorities ("CAPSA") has released new governance guidelines in consultation draft form that significantly expand upon the guidelines it initially published in 2004. They include a new and lengthy Frequently Asked Questions supplement.
The guidelines set out in CAPSA Guideline No. 4: Pension Plan Governance (Revised) are voluntary and, according to CAPSA, are not intended to create additional duties and responsibilities for plan administrators. Rather, they are intended to help plan administrators to implement and maintain good governance practices. They appear to represent a "gold standard" of best practices that plan administrators should strive to achieve, and are often considered to be the standards by which a court would assess plan administrators' performance. CAPSA has made a copy of the draft guidelines available online (PDF).
While CAPSA's 11 governance principles remain the same, and are still fairly general in nature, it seems that much of the new content is intended to provide practical and helpful advice to plan administrators, especially for employer-sponsored plans.
The guidelines emphasize that a plan administrator is a fiduciary, and provide a fairly straightforward legal explanation of what that means, particularly in the context of employer-sponsored pension plans. The FAQs explain the different roles of an employer and a plan administrator with respect to a pension plan, and emphasize the importance of knowing the difference. In essence, the employer is the entity that establishes the pension plan and its terms, amends the plan, and makes contributions to the plan. The administrator, on the other hand, is the entity that is responsible for managing the plan, ensuring that it complies with all legislative requirements, that all contributions are made when due, that benefits are paid, and that plan assets are invested properly.
The guidelines also make it clear that conflicts can arise between a plan sponsor's role as employer and its role as administrator, and that when this does occur, the administrator must act in the best interests of plan members and beneficiaries. In order to manage potential conflicts of interest, the guidelines recommend that plan administrators should establish a conflict of interest policy that sets out an appropriate procedure to disclose and address conflicts.
CAPSA has always recommended that administrators should establish governance objectives, but the meaning of this principle has been open to interpretation. This is no longer the case. The new draft guidelines specify that plan administrators should establish a "governance framework" document that identifies the specific duties and functions that need to be performed in order for a plan administrator to meet its fiduciary responsibilities, and demonstrates how the administrator intends to meet those responsibilities.
To assist in establishing this framework, CAPSA has published a three page fillable chart of sample roles and responsibilities for single employer plans. The chart can be filled out to indicate who is responsible for which responsibilities, including not only employer responsibilities such as plan design and funding, but also the fiduciary responsibilities of plan administration and investment. In terms of who may be responsible, the chart lists a number of possibilities, including legal advisor, actuary, record keeper, pension committee, or board of directors.
In addition, the FAQs include detailed lists of what the typical governance roles and responsibilities may include. Separate lists are provided for defined contribution, defined benefit, and multi-employer plans. These lists, as well as the chart, will need to be adapted to fit the plans for which they are intended, but they provide a good starting point for developing the framework.
The guidelines clarify that although it may often be appropriate for a plan administrator to delegate various duties and responsibilities to third parties, such as investment managers and insurance companies, the administrator retains the ultimate fiduciary responsibility for the plan. This highlights the need for the administrator to regularly monitor the performance of all involved in the governance process, and to ensure that they have the relevant qualifications, resources and experience. The FAQs provide some basic examples of the types of questions that may be asked in order to measure performance. The guidelines state that plan administrators should also ensure that their delegates have a policy to manage and disclose any conflicts of interest.
The guidelines now include a list of the type of information that plan administrators should have in order to ensure that they are meeting their fiduciary responsibilities. They also emphasize the need for ongoing education and training on governance matters, provided either internally or by external experts.
Interestingly, CAPSA no longer suggests that administrators should seek independent professional advice to ensure that any governance review it conducts, such as CAPSA's Self-Assessment Questionnaire, is impartial. It is silent on that point. However, it does suggest that the administrator may want to share the results of any governance review with plan members.
CAPSA will receive comments on the draft guidelines until June 10, 2016, all of which will be published on its website.