Canada: Grappling With Governance: The CAPSA Pension Plan Governance Guidelines

Governance is a reality for all Canadian pension plans that must be comprehensively addressed. CAPSA, the Canadian Association of Pension Supervisory Authorities, is in the process of road testing new guidelines which will ultimately affect the governance of pension plans. The guidelines were unveiled last summer along with a self-assessment questionnaire designed to assess a plan’s compliance with the guidelines. Since then, CAPSA has invited pension plan administrators to review the guidelines, complete the questionnaire and provide feedback. Once CAPSA receives and reviews the feedback from administrators, it will finalize the guidelines. It is anticipated that the guidelines will be finalized by Fall 2004. The guidelines and questionnaire are available at

The publication of the guidelines and questionnaire was the culmination of a lengthy process that began with industry consultations in 2001. Since July 2002, CAPSA has collaborated with an Industry Task Force in order to develop the draft guidelines and questionnaire. The guidelines build on the governance-related efforts of labour organizations, industry associations such as the Association of Canadian Pension Management (ACPM) and the Pension Investment Association of Canada (PIAC) and regulators such as the Office of the Superintendent of Financial Institutions (OSFI).

Eleven principles, covering diverse areas of governance, form the foundation for the guidelines. The guidelines address the plan administrator’s fiduciary duties set out under pension standards legislation and the common law, and outline the appropriate roles and responsibilities of the plan administrator. In particular, the principles of the draft guidelines confirm that the administrator should be responsible for, among other things, the following:

  • establishing performance measures and monitoring the performance of anyone with decision-making authority in the governance process and evaluating actual performance against the established criteria;
  • describing and documenting the roles, responsibilities, and accountability of all participants in the governance process;
  • establishing a framework of internal controls for risk management of the pension plan;
  • establishing appropriate procedures to oversee and ensure compliance with legislative requirements and plan documents;
  • applying the skills and knowledge needed to meet governance responsibilities and providing for appropriate training as required;
  • ensuring transparency by providing appropriate, timely and accurate information regarding the governance process to members and related parties;
  • establishing a code of conduct and a policy to address conflicts of interest.

It is important to note the guidelines are not rigid "one size fits all" rules. Instead, the guidelines provide a broad, flexible outline of key pension plan governance principles. CAPSA recognizes that different types and sizes of plans may require different governance practices. At the same time, however, CAPSA urges all plan administrators to adopt a governance

structure that is consistent with the guidelines’ principles.

The self-assessment questionnaire companion piece to the guidelines aims to assist plan administrators in determining the extent to which their plans follow effective governance principles. In particular, plan administrators are asked whether they have implemented or established policies, objectives, measures and reviews in a manner consistent with CAPSA’s guidelines. While the questionnaire need not be filed with CAPSA, CAPSA recommends that the plan administrator keep a copy on file.

CAPSA’s guidelines reflect the increased global attention to issues concerning corporate and plan governance. From the 1991 Maxwell scandal in England to the recent American Enron debacle, thousands of members have lost significant pension savings, triggering calls for improved governance standards. The Organization for Economic Co-Operation and Development (OECD) has developed fifteen principles for the regulation of private pension schemes, including principles focusing on corporate governance. In Australia, the Superannuation Safety Amendment Bill 2003 is currently before parliament. Among the proposals in the Bill are plans to develop licensing requirements for all trustees and to establish risk management strategies setting out, among other things, the risks associated with governance and decision-making processes.

Clearly the trend is towards an increased focus on purposeful, applied governance rather than haphazard administration that is based on habit and past practice. CAPSA has emphasized that it does not intend to create additional regulations and that the guidelines are voluntary corporate best practices. This means that the guidelines also provide a diagnostic tool for potential litigation. Members and former members of a plan will enjoy increased likelihood of success in litigation if they can show the administrator failed to meet the criteria established by the guidelines. The natural desire to minimize the likelihood of lawsuits over pension plan practices and to increase the due diligence defences against such law suits will motivate the prudent pension plan administrator to conform with the guidelines. In short, compliance with CAPSA’s guidelines is a prudent course of action for plan administrators and will likely be taken into account by the courts in making a determination on whether a pension plan administrator adequately satisfied its fiduciary obligations under pension standards legislation and the common law.

The development of comprehensive, practical governance practices that satisfy the broad requirements of the draft CAPSA guidelines is a complex task. Professional plan consultants and legal advisors can assist plan administrators facing the challenge of developing or updating pension governance practices. In an increasingly regulated environment that is also increasingly litigious, it is in your best interest to reduce your legal exposure by assessing your current pension governance procedures and eliminating any potential weaknesses.The lawyers of the McMillan Binch Pensions and Employee Compensation Group are available to help you with a pension governance audit and to develop a governance model that best suits the needs of your plan.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2004 McMillan Binch LLP

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