Pension plan administrators in Canada have the challenging task
of selecting appropriate investments for pension plans, and
reporting and monitoring such investments. The Canadian Association
of Pension Supervisory Authorities recently released Guideline No.
6: Pension Plan Prudent Investment Practices Guideline along with a
companion self-assessment questionnaire. The Guideline and
questionnaire should assist administrators in deciding how to
select, report and monitor investments for defined benefit and
defined contribution pension plans. While the Guideline and
questionnaire are guidelines and not legal requirements, they can
assist plan administrators in meeting their fiduciary duties with
respect to the investment of the plan's assets.
PRUDENT INVESTMENT PRACTICES GUIDELINE
The Guideline provides plan administrators guidance on the
application of prudence to the investment of pension plan assets.
Plan administrators have a fiduciary duty to ensure the pension
fund's assets are invested in a prudent manner. Special
considerations apply where an employer is both a plan administrator
and plan sponsor. A clear understanding of which role the employer
is carrying out in its various functions is important in such
cases. In its plan administrator role, the employer must act in a
fiduciary capacity, ensuring that its actions and decisions take
into account the best interests of the pension plan beneficiaries.
In its role as plan sponsor, the employer is entitled to act in its
own best interests but may be subject to an implied duty of good
The Guideline elaborates on "prudent investment
principles" for plan administrators, which include the
Prudent Processes. Prudence focuses on plan
administrators' behaviours and processes rather than requiring
particular outcomes. The prudent person rule is an objective
standard of conduct which refers to the actions of a prudent
person. The Guideline suggests that plan administrators should make
decisions based on proper consideration of adequate information,
and document the final decision, the reasons for the decision, and
the circumstances that were considered. It is also important to
have a good governance structure, deliberate decision-making,
appropriate documentation, and record keeping. Appropriate
documentation includes documenting processes, policies, and
Statement of Investment Policies & Procedures
(SIP&P) and Investment Policy. Plan administrators are
required to establish a written SIP&P. The Guideline suggests
that pension plans may decide to have a broader "investment
policy". Such a policy could: reflect the investment
objectives of the pension plan; set out investment principles,
strategic asset allocation, performance objectives, risk
tolerances, processes for regular monitoring and review of the
objectives and tolerances, the persons delegated responsibilities
for the administration and investment of the assets, and
established processes; and include a process for selecting and
replacing asset managers, monitoring and reviewing performance, and
changing asset allocation.
Prudent Delegation and Monitoring. Plan
administrators should assess the extent to which they have the
right internal structures, processes, resources, skills, knowledge
and expertise to effectively perform their investment duties. Where
a plan administrator requires assistance in such areas, it may be
advisable to delegate such tasks to appropriate individuals or
organizations. The Guideline suggests that if delegation is to
occur, the written governance documents of the plan should set out
the authority to delegate, the requirement of the delegate to
report back, and the obligation of the plan administrator to
monitor the delegate. Further, the delegation documents should set
out the terms of delegation, the delegate's obligations to
report back, and whether the delegate has the authority to
subdelegate. Activities by delegates should also be monitored and
The Guideline also contains a discussion on the "prudent
investment principles" of investment objectives, risk
tolerances, asset allocation, and investment selection and due
The companion self-assessment questionnaire, largely modeled on
the prudent investment principles described in the Guideline,
contains questions and considerations that plan administrators can
use to evaluate their practices.
Each defined benefit and defined contribution pension plan has
its own unique considerations. The Guideline and the questionnaire
can be used to assist in assessing whether a plan administrator is
acting in compliance with its fiduciary duties with respect to the
investment of the plan's assets. Other considerations, such as
statutory requirements and case-specific considerations, may need
to be considered.
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