Canadian Institute of Actuaries L�Institut canadien des actuaires by AUlsb4S

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									 Canadian                 L’Institut
  Institute               canadien
         of               des
 Actuaries                actuaires

 2006 General Meeting
Assemblée générale 2006
    Chicago, Illinois
                               New Developments In The
                               Governance Of Employer-
                               Sponsored Pension Plans:
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                                    Are We Prepared?



                          Co-presenters:
                          Gordon M. Hall & Elizabeth M. Brown
                              Governance is about…

                               decision making…..and
                              oversight of the functions
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                               performed by agents…

                          all with the objective of improving
                             performance…broadly defined
                                      Purpose of the Paper
                          • Pension governance reform and
                            developments
                          • Best-in-class practices
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                          • Significance of increased board oversight for
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                            consulting professionals
                          • Stimulate dialogue in the actuarial
                            profession
                                •   Role of the actuary
                                •   Pension governance enhancements
                                •   Wholesome service to the public
                                           Perspective

                          • Through eyes of Oversight Board
                          • Looks across Canada’s private pension
                            system
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                          • Considers all stakeholders
                          • Understands that much of pension
                            governance reform
                            –   not tied to statutory requirements
                            –   derived from fiduciary principles, best
                                practices & jurisprudence
                                       Perspective

                          • Leadership of pension governance
                            reform initiatives is key
                          • No one-size-fits-all governance
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                            solutions
                          • Whether D.B. or D.C. is important but
                            only a small part of pension
                            governance reform
                          • Pension governance reform…working
                            within Canada’s private pension
                            system….can succeed
                                    New Developments


                          1. Corporate governance reform for the
                             sponsoring employer
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                            –   audit committee reform
                            –   internal control over financial reporting
                            –   focus on enterprise risk management
                            –   Board-approved MD&A-type annual
                                reports
                                    New Developments


                          2. Credit and equity analysts
                            –   pension-related risks in models
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                            –   Oversight Boards interested in external
                                markets view
                                    New Developments


                          3. Within employer-sponsored pension
                             arrangements
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                                demographics
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                            –

                            –   increased litigious activity
                            –   legislative & regulatory developments
                            –   competency & experience deficiencies of
                                Oversight Board members
                            –   trustees/directors/officers…legal
                                exposures…qualifications…ability to
                                resign
                                     New Developments

                          3. Within employer-sponsored pension
                             arrangements (cont’d)
                                quality of “pension governance safety
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                            –
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                                nets”…indemnification in sponsors’ By-
                                Laws…D&O and fiduciary liability insurance
                            –   FASB & net unfunded status of pension
                                arrangements on sponsors’ balance sheets
                            –   increased pressure to improve investment
                                risk/return relationship
                            –   relatively new investment vehicles
                                …complexities…additional costs…
                                      Leadership

                          • CEO’s & Oversight Boards of sponsors
                            & legal administrators
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                          • the professions…the consulting
                            professionals…the firms that employ
                            them
                              Best Practices For Oversight
                                     Boards: Cases

                          • Two Best- In-Class Cases
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                            – The Ontario Teachers’ Pension Plan

                            – The Plan For Ordained Ministers and
                              Staff of the United Church of Canada
                                Best Practices For Oversight
                                 Boards: Recommendations
                          1. Framework
                            –   terms of reference
                            –   requisite skills & experience
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                            –   beliefs & guiding principles
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                            –   code of conduct…confidentiality … conflicts of
                                interest…collegiality…safe disclosure…
                            –   orientation/awareness for new Oversight Board
                                members
                            –   continuing education initiatives for Board
                                members…self-teaching & formal knowledge
                                accumulation…subject matter…
                            –   self-evaluation
                                Best Practices For Oversight
                                 Boards: Recommendations
                          2. Orientation & Processes
                            –   ask tough questions…coach, mentor,work as a
                                team
                            –   stick to guiding principles…promulgating
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                                guiding principles & policies…follow-on
                                monitoring and evaluation
                            –   be diligent in confirming qualifications,
                                capabilities & performance of external advisors
                                & suppliers
                            –   create a sense of partnership & community
                                …all suppliers…for the good of the plan
                                Best Practices For Oversight
                                 Boards: Recommendations
                          2. Orientation & Processes (cont’d)
                            –   confirm “pension deal” is relevant…capable of
                                being fulfilled…interests of sponsor &
                                members are aligned
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                            –   stay on top of litigation & legislative
                                developments…for the plan…and for trustees/
                                officers/directors
                            –   stay current with…pension standards
                                regulators…government policy makers
                            –   minimum standards…being met…should be
                                exceeded?
                                Best Practices For Oversight
                                 Boards: Recommendations
                          2. Orientation & Processes (cont’d)
                            –   insist on appropriate documentation of the
                                Oversight Board’s activities…agendas, work
                                plans, minutes…
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                            –   insist that agents peer review all materials
                            –   insist on consistent quality…between
                                governance of core business & plan…with
                                respect to …control environment…and Board-
                                approved reporting
                            –   network with other Oversight Boards about
                                pension governance
                            –   evolve…it is all about continuous improvement
                                in the quality of governance
                                             Significance

                          • CEO’s of sponsors…set “tone-at-the-
                            top”…related to pension governance reform
                          • Oversight Boards…make “business
                            conduct” expectations…related to pension
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                            governance reform…known
                            –   understanding
                            –   collection of requisite skills & experience
                            –   guiding principles protocols & practices
                            –   all forms of conflicts of interest
                                          Significance

                          • the Professions
                            – integration of specialty advice…critical to
                              effectiveness of outcome for plans
                            – inter-face of thought leadership between
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                              professions…should/will increase considerably
                          • the Actuarial Profession
                            – governance of the profession being strengthened
                            – CIA responding to the professional leadership
                              needs of its membership
                                              Significance

                          • the Actuarial Profession (cont’d)
                            – May 2005 Report…”actuarial standards may
                              lag…”
                               •
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                                   most appropriate investments?
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                               •   optimal structure?
                               •   consensus building on a timely basis?
                               •   curriculum current?
                               •   service to public…more wholesome?
                                             Significance

                          • the Actuarial Consulting Professionals
                            – those not close to retirement…as an actuarial
                              practitioner…
                               • advice is custom-fit & suitably broadly-based
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                               • integrating this advice with that of other specialists
                               • stating positions that Oversight Boards need to hear
                            – those closer to retirement…with an inclination to
                              self-learning & to Oversight Board service
                               • seek formal corporate governance education
                               • join audit & governance committees…NFP sector
                                         Conclusions

                          • CEO’s…set “tone-at-the-top”
                          • Oversight Boards…make “business
                            expectations” related to pension
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                            governance known
                          • Consulting Professionals & Executives
                            at Sponsors
                            – advisors working more closely together
                            – sense of partnership & community…for the good
                              of a specific plan
 2006 General Meeting
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