On November 15, 2011, the Canadian Association of Pension Supervisory Authorities (CAPSA) released two Guidelines on pension plan governance. These Guidelines outline the expectations relating to the investment of pension plan assets, as well as best practices when developing and adopting a funding policy for pension plans that provide defined benefits.
Guideline No. 6: Pension Plan Investment Practices Guideline provides a variety of prudent investment principles that plan administrators should bear in mind when managing investments. In this Guideline, CAPSA encourages plan administrators to assess their current investment practices to ensure prudent practices are in place. The focus of the Guideline is to ensure that plan administrators have a robust, process-oriented decision-making framework in place within which investment management activities are conducted.
The Guideline clarifies the prudent person rule and provides guidance on delegation of investment functions, defining investment objectives, determining risk tolerances, formulation of Statements of Investment Policies and Procedures and broader investment policies and procedures, allocation of assets, selection of investments, due diligence, and monitoring compliance. The Guideline recommends that plan administrators use the companion Self-Assessment Questionnaire on Prudent Investment Practices when establishing and reviewing the investment practices in place for pension plans.
Guideline No. 7: Pension Plan Funding Policy Guideline outlines eleven elements that, when addressed, constitute best practices in the creation of a funding policy. Funding policies should discuss the overall plan overview, funding objectives, key risks faced by the plan, funding volatility factors and the management of risk, funding target ranges, cost sharing mechanisms, utilization of funding excess, actuarial methods, assumptions and reporting, frequency of valuation, monitoring, and communications policy.
For more information on the guidelines, please see Heenan Blaikie's Pension Pulse " CAPSA Introduces Guidelines on Prudent Investment Practices and Funding Policy" (pdf).