Effective Pension Plan Governance

written by RAJA NURU SUHADA BINTI RAJA HARUN

The PIAC(Pension Investment Association of Canada) Governance Model
Pension plans are businesses. Pension plans are fiduciary duty to their beneficiaries, pension plan managers have participated in the ongoing examination of recommended structure for a pension plan’s own governance. The Pension Investment Association of Canada plans. Accountability of those involved in the governance of pension plans. As with the Ernst & Young model, the PIAC Pension Governance Process model identifies key issues and essential features that will be common for all pension plans, large or small, defined allow pension funds to fulfill the promise of retirement security to their beneficiaries.

The Pension Promise
The pension promise embedded in the plan provisions is the starting point for providing proper pension plan governance. Proper pension plan governance is a critical feature of delivering on the pension promise.
1) the pension entitlements
2) the funding policy chosen, and
3) the provisions for management oversight.
The pension promise must specifically acknowledge who bears the risks of inadequate investment. Pension plans are complex businesses created for the benefit of pension plan stakeholders including current too must stewards of a pension plan recognize who the stakeholders in the plan are and what loyalties. An effective pension promise is required to establish proper pension governance. The governance process, for any organization, embodies three discrete features:
1) Board/ Trustee selection and organization,
2) defining how power is shared between the Board/Trustees and management,
3) the overall governance process itself.
Pension Trustees are expected to oversee the business and affairs of the plan but are not expected to manage the plan liabilities of the total pension plan.
Pension Trustees competent in many other management areas sometimes feel, incorrectly, no studied as a steward of pension plans, prudence demands that a Trustee should understand financial markets, risk management and actuarial principles.

Governance Principles
Trustee Independence: A number of the TSE guidelines speak to board independence from management, fiduciary duty.
Management Duties
While some large defined benefit plans are constituted as independent entities with management reporting to delivery of the pension promise requires an integrated management solution. Managed as a single business in the case of defined benefit plans. For hybrid plans, both sets of plan business risks power to management. Fiduciary Duty
The Trustees have a duty to interpret the plan terms fairly and pay the benefits promised. Clearly the plan member is vulnerable to the fiduciary and this unequal relationship defines the need for duty, care and prudence. The terms of the plan design are frequently set unilaterally by the plan sponsor, but they must be interpreted impartially, fairly, and in good faith when paying the benefit promised.



Fiduciary Obligations
•ensuring the completeness of plan terms
•ensuring actuarial valuations are performed for defined benefit plans
•ensuring funds are prudently invested

The PIAC Pension Governance Process
1- Trustee Selection and Organization
2 - Trustee and Management Power Sharing
3 - Trustee Monitoring of Management Performance
4 - Assessing Plan Governance Performance