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Pension governance a high priority for Canadian business
June 9, 2005
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Toronto, Canada. - Results of a survey by Towers Perrin show Canadian employers are paying more attention than ever before when it comes to governance of their pension plans. The increased focus on governance by plan sponsors and regulators in the past few years has led to widespread improvements in governance practices, according to Towers Perrin. But despite the positive results overall, the survey found that plan sponsors and administrators are still working to improve governance practices and better manage pension risk.

"Managing pension risk is a high priority for plan sponsors and a top-of-mind issue for plan members,” says Florence Holden, a Towers Perrin Principal and consultant in the firm’s HR Services business. “Organizations are recognizing the importance of taking a more active approach to managing their pension plans and are increasingly devoting more resources to doing so, including increased participation from finance leaders and Board members. In the past several years, plan sponsors have focused on managing the financial risk of pension plans in the four key policy areas of plan design, funding, investment and accounting. The good news for plan sponsors is that implementing good governance is likely to go a long way to supporting sound financial management.

"Strong financial management processes are not enough to manage all inherent risks. Plan sponsors and members face many types of risk that cannot be identified solely by those processes. Among the best ways to manage pension risk properly is through designing and implementing a good governance process which addresses issues such as accountability, transparency, stakeholder risk management and ongoing monitoring and performance measurement, from both a plan sponsor and plan member perspective."

Four key priorities for improving pension governance identified by respondents include:

  • Clearer documentation of pension governance roles and responsibilities: Forty-five per cent of respondents indicated clearer documentation of pension governance roles and responsibilities is needed. Survey data indicated sponsors of defined benefit (DB) plans are more likely to have governance documentation than sponsors of defined contribution (DC) plans;
  • More rigorous performance standards: One third of respondents indicated more rigorous performance standards are needed for all     parties involved with the pension plan including investment managers, trustee/custodians, third-party administrators, actuaries, internal pension staff and the plan administrator;
  • Significant improvements in Board reporting: Plan administrators need to improve reporting to their Boards - both in content and frequency. Less than half (48 percent) of respondents provide an annual pension report to the Board. Similarly, less than half provide information on key financial forecasting, compliance with key policy areas, conflict of interest, reporting, vendor management, or changes in plan membership and demographics;
  • Accelerated risk management process for plan members: Survey data indicates 47% of respondents do not have a clear approach to managing members' exposure to insufficient retirement income, which may be linked to plan design and poor member investment education, among other things.

The survey was completed by 127 organizations across industry sectors in Canada. Seventy-nine per cent of the respondents sponsor DB plans, while 55 percent sponsor DC plans.

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