Pension Governance a High Priority for Canadian Business

Towers Perrin study reveals organizations are working to improve pension governance practices

Toronto, June 9, 2005 — Results of a survey released today 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. 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,” said Florence Holden, a Towers Perrin Principal and consultant in the firm�s HR Services business.

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.

�However,�� said Holden, “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:

  1. 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.

  2. 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.

  3. Significant improvements in Board reporting: Plan administrators need to improve reporting to their Boards � both in content and frequency. Less than half (48%) 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.

  4. 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% sponsor DC plans.

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve their performance through effective people, risk and financial management. Through its HR Services business, Towers Perrin provides global human resource consulting that helps organizations effectively manage their investment in people. Areas of focus include employee benefits, compensation, communication, change management, employee research and the delivery of HR services. The firm�s other businesses are Reinsurance, which provides reinsurance intermediary services, and Tillinghast, which provides management and actuarial consulting to the financial services industry. Together, these businesses have offices in 24 countries. More information about HR Services is available at http://www.towersperrin.com/hrservices. www.towergroup.com