pension law and fiduciary duties · fiduciary duties plan governance the structure and processes...

Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525

Pension Law and Fiduciary Duties

Instructor: Dominique Roelants

Executive Officer, B.C. College, Public

Services and Teachers’ Pension

Boards


PENSION LAW &

FIDUCIARY DUTIES

Plan GovernanceThe structure and processes under which a pension plan is

administered and monitored to ensure that fiduciary and other

obligations with respect to the plan are fulfilled.


PENSION LAW &

FIDUCIARY DUTIES

New PBSA The BC Government passed a new Pension Benefit Standards Act in

2012 and it includes many new provisions one of which is:

Must have a governance policy (s. 42)

And this policy must meet “the prescribed criteria”.


Plan Governance May differ by type of plan:

Single employer;

Multi-employer;

Jointly sponsored.

PENSION LAW &

FIDUCIARY DUTIES


What is a Fiduciary?A fiduciary is anyone who is in a position of trust and who has a special

responsibility to the beneficiary of the trust.

PENSION LAW &

FIDUCIARY DUTIES


Main Fiduciary DutiesTwo Overarching Fiduciary Duties:

1) Duty of prudence.

2) Duty of loyalty.

PENSION LAW &

FIDUCIARY DUTIES


Duty of PrudenceIn the administration of a pension plan, the administrator must:

(a) act honestly, in good faith and in the best interests of the

members and former members and any other persons to

whom a fiduciary duty is owed, and

(b) exercise the care, diligence and skill that a person of

ordinary prudence would exercise when dealing with the

property of another person.

PBSA, s. 8(5)

New PBSA s. 35(3)

PENSION LAW &

FIDUCIARY DUTIES


Duty of PrudencePension plan assets must be invested in a manner that a reasonable

and prudent person would apply in respect of a portfolio of investments

made on behalf of another person to whom there is owed a fiduciary

duty to make investments without undue risk of loss and with a

reasonable expectation of a return on the investments commensurate

with the risk.

PBSA, s. 44(2)

New PBSA s. 60(2)

PENSION LAW &

FIDUCIARY DUTIES


Duty of LoyaltyThe provisions of subsection (5) are in addition to, and not in derogation

of, any enactment or rule of law or equity relating to the duties or

liabilities of a trustee.

PBSA, s. 8(6)

Not in new PBSA

PENSION LAW &

FIDUCIARY DUTIES


PBSA comparison(7) If an administrator employs an agent to carry out some of the duties of the

administrator, the administrator must be satisfied of the agent's qualifications

to perform the duties for which the agent is employed, and must carry out

such supervision of the agent as is prudent and reasonable.

(8) An agent or employee of an administrator is subject to the standards that

apply to the administrator under this section.

PBSA, s. 8(7) and (8)

(7) If an administrator employs an agent to exercise one or more of the powers or

perform one or more of the duties of the administrator, the administrator must

(a) be satisfied that the agent is qualified to exercise the powers or perform

the duties for which the agent is employed, and

(b) carry out reasonable and prudent supervision of the agent.

New PBSA, s. 35(7)

PENSION LAW &

FIDUCIARY DUTIES


Code of ConductTrustees must act:

In good faith and in the best interest of plan members.

With prudence and reasonable care.

With skill, competence and diligence.

With independence and objectivity.

Without conflicts of interest.

In accordance with laws.

PENSION LAW &

FIDUCIARY DUTIES


Roles and Responsibilities Know the Trust Agreement and policies.

Oversee pension staff, service providers, financial

reporting.

Review strategic plan and risk assessment.

Oversee communication of plan.

Conduct and review audits.

PENSION LAW &

FIDUCIARY DUTIES


Standard of Care and Delegation Act with skill, competence and diligence.

If lacking sufficient knowledge, the Trustee must advise

and seek further information and advice to make an

informed decision.

Trustees may delegate to appropriate person/agent.

PENSION LAW &

FIDUCIARY DUTIES


Conflicts Union positions/interests.

Employer Trustees positions/interests.

Plan costs versus member requests.

Confidentiality of plan information.

Individual member representation vs plan issues.

Gifts offered by service providers.

PENSION LAW &

FIDUCIARY DUTIES


Addressing Conflicts Check plan provisions.

Check plan communication provisions.

Check plan policies.

Seek direction from legal counsel.

Consult trade union.

Clarify rules and policies re roles.

PENSION LAW &

FIDUCIARY DUTIES


Accountability Ensure that policies are clearly outlined and understood.

Set goals with expected outcomes.

Monitor and evaluate effectiveness of Board function and

policies.

Ensure independence of Board and Management.

PENSION LAW &

FIDUCIARY DUTIES


PENSION LAW &

FIDUCIARY DUTIES



Must have a funding policy (s. 44)



Duty of Impartiality Trustees can differentiate amongst members, with equal

consideration.

Does not mean equal treatment

All relevant considerations must be assessed.

Properly record decision making.

Trustees’ duty of loyalty is to the plan.

PENSION LAW &

FIDUCIARY DUTIES


PENSION LAW &

FIDUCIARY DUTIES



Must have a Statement of Investment Policies and Procedures (s. 43)



Fiduciary Duty Investments

Maintain an optimal rate of return within acceptable levels

of risks.

Maintain adequate diversification within accepted levels of

risks.

To act in the best financial interests of the plan members.

PENSION LAW &

FIDUCIARY DUTIES


Fiduciary Duty Investments (RI)

Pension plan investments, loans and other pension plan financial

decisions must be made in accordance with this Act and the regulations

and in the best financial interests of plan members, former members

and other plan beneficiaries.

PBSA, s. 44(1)

New PBSA s. 60(1)

PENSION LAW &

FIDUCIARY DUTIES


Effective Boards Positive performance of the plan is impacted by effective

decision making.

Things to consider include:

Who makes the decisions.

Proper skills, knowledge and resources.

Checks and balances (reporting and approvals).

PENSION LAW &

FIDUCIARY DUTIES


Effective Boards Exercise problem solving skills.

Able to assess and address probabilities.

Avoid hasty decisions.

Diversity of Board Member skills.

Optimal leadership.

Structured decision making.

PENSION LAW &

FIDUCIARY DUTIES


Trustee Protection from Liability Document all proceedings when making a decision.

Get expert advice when making decisions.

Get indemnification clause/agreement from plan (or

union).

PENSION LAW &

FIDUCIARY DUTIES


Trustee Protection from Liability Review all plan documents/trust documents for issues.

Act in accordance with the plan’s trust agreement,

investment policy and the law.

Act in the long-term best interests of plan members and

beneficiaries.

Obtain liability insurance through plan.

PENSION LAW &

FIDUCIARY DUTIES


Union Protection from Liability Make appointments on time etc. in accordance with trust

agreement.

Union must not control trustees when they are performing

duties.

Obtain a clause in trust agreement limiting liability of union

for acts/omissions of trustees.

PENSION LAW &

FIDUCIARY DUTIES


Selection of Trustee Nomination

Vote

Selection Criteria

Length of Appointment

Evaluation of Trustee

PENSION LAW &

FIDUCIARY DUTIES


PENSION LAW &

FIDUCIARY DUTIES

Selection of TrusteeConsideration for the appointment of trustees

Experience, aptitude and interest.

Prepared to learn, not afraid to ask questions.

Significant time commitment.

Recognize the significant responsibility.


Expectations of a Trustee Develop knowledge and skill.

Prepare for meetings.

Attend meetings.

Take an active role in meetings.

Understand role and responsibilities.

Communicate, be accountable.

PENSION LAW &

FIDUCIARY DUTIES


A Successful Trustee Is aware of plan member concerns and interests.

Acts in the best interests of plan members

Reports and supports communication.

Attends educational opportunities.

Allocates sufficient time to prepare and understand plan

issues.

PENSION LAW &

FIDUCIARY DUTIES


Union TrusteesUnion Trustees are decision makers.

They are appointed by their union to:

Pension Boards

Pension Committees

Benefit Committees

Benefit Representative for Bargaining

PENSION LAW &

FIDUCIARY DUTIES


Role of the UnionUnion must support Trustee by:

Supporting attendance at plan meetings.

Supporting attendance at educationals.

Facilitate opportunities for reporting.

Allow successor planning for replacement Trustees.

But Union may not direct Trustee.

PENSION LAW &

FIDUCIARY DUTIES


Role of the Union Ensure the best Trustee is appointed.

Require updates and reports.

Establish criteria for Trustee appointments and evaluate

their effectiveness.

Replace Trustee if necessary.

Keep Trustee informed of relevant issues pertaining to

benefit plans.

PENSION LAW &

FIDUCIARY DUTIES


Role of Unions in Plan Governance Varies according to the plan

Different types of models:

Jointly trusteed

Employer trusteed

Union trusteed

Unions may have a role in appointing or electing pension

trustees

PENSION LAW &

FIDUCIARY DUTIES


Overhead

3.3

Role of Unions in Plan Governance Unions can play a critical role in developing current and

future trustees

Through training

Through mentoring

Through committee appointments prior to becoming

trustees

PENSION LAW &

FIDUCIARY DUTIES


Unions and Member Engagement and

AwarenessA major challenge can be member apathy.

Unions can help educate members about differences

between plans.

Unions can also promote awareness and training of plan

members. The Plan is responsible for plan

communication.

PENSION LAW &

FIDUCIARY DUTIES


Trustee Practices1. How does your union determine benefit Trustees?

2. What are the reporting mechanisms for Trustees to report

to the Union?

3. What conflicts have arisen? How were they addressed?

PENSION LAW &

FIDUCIARY DUTIES


What Should the Trustee Do?1. Union wants to increase pension investments in local

businesses?

2. Investment firm offers free tickets to a special

presentation?

3. Union member unhappy with a plan decision and wants

special consideration?

PENSION LAW &

FIDUCIARY DUTIES


What Should the Trustee Do?4. Pending plan changes, should they be reported?

5. Pensioners lobbying for a plan improvement for

pensioners?

PENSION LAW &

FIDUCIARY DUTIES


Capital Stewardship

Instructor: Peter Chapman

Executive Director, SHARE


CAPTIAL

STEWWARDSHIP

Responsible Pension InvestmentDefinition

Responsible pension investment is the integration of environmental,

social and governance (ESG) considerations into investment

management processes.


Principle 1: Incorporate ESG issues into investment analysis

and decision-making.

Principle 2: Be active owners. Incorporate ESG issues into

ownership policies & practices.

Principle 3: Seek appropriate disclosure on ESG issues where

we invest.

Principle 4: Promote investment industry acceptance &

implementation.

Principle 5: Work together to enhance effective implementation.

Principle 6: Report on activities and progress.

UN Principles for Responsible Investment

CAPTIAL

STEWWARDSHIP


UN Principles for Responsible InvestmentGrowing mainstream acceptance

1100+ signatories

AUM = $33 trillion dollars

Labour fund representatives involvement in governance

Learning and collective action in a community of peers

Annual reporting tool for signatories

Research on asset classes, fiduciary problems,

investment

CAPTIAL

STEWWARDSHIP


Asset Owners Asset Managers

BC Municipal Pension Plan

Caisse de depot et placement

CPP Investment Board

Batirente

Fonds de Solidarite

Healthcare of Ontario PP

OPSEU Pension Trust

Univ. Montreal Pension Plan

Alberta Investment Management Co.

Bentall Kennedy

BC Investment Management Co.

Fiera

Matrix Asset Management

NEI Investments

TD Asset Management

Vancity Investment Management

UN Principles for Responsible InvestmentSome Canadian signatories

CAPTIAL

STEWWARDSHIP


Asset Selection

Screening

Integration

Targeted/Impact Investment

Active Ownership

Proxy Voting

Engagement

Securities Class Action

Public Policy

Legal and Regulatory reform

Voluntary initiatives

Responsible Investment Strategies

CAPTIAL

STEWWARDSHIP


On current trajectories:

“the economy will contract

by up to 20%.”

- Stern Report (2006)

Financial Market Failure:Climate change

CAPTIAL

STEWWARDSHIP


Financial Market Failure:BP gulf oil disaster

1100+ signatories

AUM = $33 trillion dollars

Labour fund representatives

involvement in governance

Learning and collective

action in a community of

peers

Annual reporting tool for signatories

Research on asset classes, fiduciary problems, investment

CAPTIAL

STEWWARDSHIP


Financial Market Failure:Soaring executive pay

Average CEO at Canada’s top 100 public companies

earns 189 times more than the average wage;

Increased 27% since 2009;

Risky pay structures can harm shareholder value; and

Growing inequality inhibits vibrant economies,

sustainable growth and

healthy communities.

CAPTIAL

STEWWARDSHIP


More Canadian companies are voluntarily giving shareholders an advisor vote on executive compensation (aka "say on pay")

More Canadian companies are voluntarily giving shareholders an advisor vote on executive compensation (aka "say on pay")More Canadian companies are voluntarily giving shareholders an advisor vote on executive compensation (aka "say on pay")

More Canadian companies are voluntarily giving shareholders an

advisory vote on executive compensation

More Canadian companies are voluntarily giving shareholders an advisor vote on executive compensation (aka "say on pay")More Canadian companies are voluntarily giving shareholders an advisor vote on executive compensation (aka "say on pay")

27

68

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120

0102030405060708090

100110120130

2010 2011 2012 June 2013

Nu

mb

er

of

co

mp

an

ies

Trends We’re Watching“Say on Pay” votes on executive compensation

CAPTIAL

STEWWARDSHIP


4.90%

6.16%

7.57%

9.09%

4%

5%

6%

7%

8%

9%

10%

2010 2011 2012 Jun-13

Average votes against executive pay

Percentage shareholders voting against executive

compensation in say-on-pay votes is increasing

CAPTIAL

STEWWARDSHIP


Implementing Responsible InvestmentWhat can plan members and unions do?

Educate yourselves and pension board representatives

Promote best practices for investment of union funds

Ask pension plans to become PRI signatories

Ask for an annual report on how the plan takes ESG

issues into account in asset selection and ownership

rights

Establish union policies

Other ideas?

CAPTIAL

STEWWARDSHIP


Implementing Responsible InvestmentWhat can plan members and unions do?

Annual Key Proxy Vote Survey

proxyvotesurvey.ca

How did your investment manager vote on important

issues?

Proxy survey provides a snapshot of how plan members’

share ownership rights are being used.

CAPTIAL

STEWWARDSHIP

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