CANADA - Canadian employers are paying increasing attention to governance of their pension plans, with managing pension risk the biggest focus, according to Towers Perrin.
Results of a survey by the consulting firm found increased focus on governance by plan sponsors and regulators in recent years has led to widespread improvements in governance practices. Plan sponsors have focussed largely on managing the financial risk of the plan across design, funding, investment and accounting.
But Florence Holden, a principal of Towers Perrin and consultant in the firm’s HR services business, warned strong financial management processes were not enough to manage all inherent risks.
“Organisations are recognising 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,” she said.
“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.”
Respondents identified clearer documentation of pension governance roles and responsibilities; more rigorous performance standards; significant improvements in Board reporting; and accelerated risk management process for plan members as key priorities for improving pension governance.
According to the results, only 48% of respondents provide an annual pension report to the Board and less than half provide information on key financial forecasting, compliance with key policy areas, conflict of interest or changes in plan membership and demographics.
In addition, some 47% did not have a clear approach to managing members’ exposure to insufficient retirement income, Towers said.
The survey covered 127 firms - 79% of which sponsored defined benefit plans and 55% defined contribution plans - across industry sectors in Canada
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