BC Puts Spotlight on Pension Governance
PBSA spells out role of the pension administrator.
June 19, 2012
Governance has always been a key and somewhat contentious issue in administering pension plans. The new BC PBSA however provides a breath of fresh air in many ways in terms of laying out governance requirements and expectations as well as addressing several long standing pension conundrums. The new Act, which comes into effect some time after January 1, 2013, takes a more principles vs. rules based approach but continues to be more defined benefit plans focused.
However, new regulations that are a critical aspect of the new Act are expected to address capital accumulation plans and possibly pooled registered pension type plans.
The Act addresses several areas:
- new plan designs e.g. target benefit plans;
- provisions removing differences due to gender;
- immediate vesting on termination;
- temporary retiree benefit improvements are allowed in target benefit plans;
- admin and investment expenses can be paid from the plan, if not otherwise specified in the plan;
- separate solvency reserve accounts can be established to hold solvency deficiency deposits which can be withdrawn, regardless of plan provisions;
- specifies that investment and financial decisions must be in the best interest of the plan members and invested in a manner that is reasonable and prudent;
- requires that a DC plan be funded in accordance with the plan document;
- procedures are outlined for using or distributing actuarial surplus; and,
- the relationship between the employer and administrator is outlined.
While the Act addresses windups (DB) it is silent on the issue of partial windups perhaps indicating a possible change in the regulations. Standardization of pension plans via automatic inclusion of certain basic provisions (S.9) e.g. Part 7 & 8 – funding, investment requirements locking in commuted values, transfers, etc. are also important changes. In December 2010 Section 8 of the federal PBSA was amended to provide a “safe harbor” for DC plan sponsors (contingent on meeting the requirements in the new S.S. 4.3). For many years, ERISA legislation in the U.S. includes “safe harbor” provisions for 401K sponsors. In both cases the “safe harbor” provisions focus on strong governance framework and practices.
The new BC PBSA focuses on governance and the role of the administrator.
The administrator is simply defined (S.1) as the person responsible for administering the plan and while S.33 requires that every plan have an administrator.
The administrator must administer the plan in accordance with the Act, is considered a fiduciary, must act in the best interests of the members and must exercise the care and skill that a person of ordinary prudence would exercise in dealing with the property of others.
In addition the administrator must ensure plan documents comply with the Act and that any delegates are qualified to undertake the duties that have been delegated to them (S.35).
The administrator is now required and has the formidable task of assessing the administration of plan including: plan governance, funding of the plan, and the performance of the trustees and administrative staff. These assessments must be in writing and available to the Superintendent upon request (S.41).
The Act also requires that a written governance policy is in place that meets the prescribed criteria for overseeing and administering the plan and that the plan is administered in accordance with the governance policy (S.42). The administrator must develop a written statement of investment policies and procedures and ensure it is followed (S.43). A written funding policy is also required outlining the funding objectives and method of achieving these objectives (S.44). While most of these requirements are common governance practice it is unusual that they are specified in the Act.
The increased role and duties of the administrator clearly set the position apart from the sponsor/employer and require objective independence in acting in the best interest of plan members. Finding a senior person with the skills, experience and time necessary to fill the administrator role will be a challenge in many organizations. Reliance on pension governance consultants will undoubtedly be necessary and the most efficient and cost effective approach in many cases.