Proposed Ontario Requirement: Governance and Funding Policies

August 29, 2017 Normand Frenette

Some people enjoy the adrenaline rush that comes with taking risks, while others prefer the peace of mind that comes with security. If you’re sponsoring or administering a pension plan, you probably want to manage any risk very closely. Risk is about choices and consequences.

“The CAPSA guideline is certainly a very relevant document if you have not yet started to think about what you will want in your own governance and funding policies.”

When it comes to managing a pension plan, there are numerous risks taken by various parties, such as plan beneficiaries, plan sponsors, plan administrators, boards of directors, regulators, etc. It may not be easy to consider all them when evaluating the consequences on all parties of any required decisions. This is probably what the Ontario regulator had in mind when a decision was taken to require pension plans to develop written funding and governance policies, as was announced by FSCO in May 2017.

Governance and funding policies establish a process for making well-informed decisions that meet the prudency standard required by legislation, for implementing them, and for monitoring their impact, while eliminating the emotions related to the environment of the moment. Good governance focuses on decisions, not results. It serves as an important tool to inform interested parties how pension plan risks are managed and to ensure that the rationale behind any decision can be easily explained. This may prove useful in the event of an argument over a potential breach of trust. It also provides a tool for the regulators to evaluate whether a plan is administered as intended.

It is likely that the Ontario regulators will clearly define the minimal content that they want to see in Governance and funding policies. You may want to refer to the Alberta and British Columbia legislative requirements for more information. Although most items can be found in the Canadian Association of Pension Supervisory Authorities’ (CAPSA) pension plan governance guidelines, there are some differences.

We do not know what Ontario will require at this point in time. But the CAPSA guideline is certainly a very relevant document if you have not yet started to think about what you will want in your own governance and funding policies. CAPSA also provides a self-assessment questionnaire to help you assess how your plan management practices compare with best-practice governance principles.

Your pension consultant can guide you toward the development of governance and funding policies that will reflect how you can realistically manage the pension plan various risks while balancing the interest of all parties.

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