Research Resources
CAP Guidelines
Fiduciary Responsibility and Good Corporate Governance
Prudent Investor Rules
Good Governance Practices to Pass on to Plan Members
CAP Guidelines
Two major sets of guidelines were issued in 2004 to assist plan sponsors in the operation, management, and governance of their pension plans. The Joint Forum of Financial Market Regulators published its Guidelines for Capital Accumulation Plans (CAP) in May, 2004. Among the numerous issues plan sponsors need to consider; the guidelines recommend that CAP members should have access to information, decision making tools, and investment education. The Canadian Association of Pension Supervisory Authorities (CAPSA) released its Pension Plan Governance Guidelines in October, 2004 for both defined benefit (DB) and defined contribution (DC) pension plans. CAPSA is an interjurisdictional association of pension supervisory authorities committed to facilitating an efficient and effective pension regulatory system in Canada. Both the Joint Forum’s and CAPSA's guidelines are voluntary and although the latter guidelines are meant for pension plans, its principles can be applied to any savings plan sponsor who strives to comply with good governance practices.
The Financial Education Institute of Canada is a truly independent and objective education provider dedicated to helping plan sponsors meet the financial planning and retirement education needs of plan members for over 15 years. Copies of each set of governance guidelines can be obtained from the respective websites:
www.jointforum.ca
www.capsa-acor.org
Fiduciary Responsibility and Good Corporate Governance
Investment Advice or Education?
The US department of Labour published an interpretive bulletin in 1996 identifying four broad categories of information that do not constitute investment advice under the Employee Retirement Income Security Act (ERISA):
- Plan information
- General financial and investment information
- Asset allocation models
- Interactive investment materials
There is a very fine line between investment education and advice. Information in these four safe harbours is considered investment education, not investment advice and employers may provide this education themselves or through outside service providers. It is imperative the financial education the employee receives be complete, accurate, and absolutely free of any conflicts of interest.
Participants learn in different ways, therefore a well thought out financial planning and retirement education program should be designed to touch all bases; to use all of ones senses - kinesthetic (touch, feel, interactive); visual (see, live); audio (hear); read (passive). Adult learning models should also embrace a range of personality styles from expressive to analytical. Successful companies understand that educating employees is a process, not a one-time event. They provide on-going financial planning education for employees over many years and they look for an educational service provider that can develop a communication strategy to meet the diverse needs of all employees.
Prudent Investor Rules
Fiduciaries are governed by prudent investor rules in carrying out their responsibilities to plan members. It is their duty to emphasize overall portfolio performance rather than individual security selection. Fiduciaries should use risk-reducing strategies, including non-traditional investment vehicles to meet performance objectives. As well, it is important to understand that no singular investment is inherently prudent or imprudent.
Fiduciaries should emphasize total returns by diversifying across asset classes and across global markets. At all times, trustees must consider both inflation and deflation hedging strategies. Each level of fiduciary has a duty to demonstrate investment skill in asset allocation management or delegate to another more qualified fiduciary.
Employees should keep in mind that preserving capital is not the same as preserving purchasing power. In other words, at the end of your journey it is not the total capital value of your pension plan that counts. What is important is what that capital will purchase in inflated dollars at the time of your retirement.
Good Governance Practices to Pass on to Plan Members
- Communicate, Communicate, Communicate!
- Provide independent and objective financial planning education programs
- Report results and performance figures on a timely basis
- Fewer quality investment choices are better for your members than quantity
- People learn differently; provide a range of learning alternatives and techniques
- Safeguard your members privacy and confidentiality
- Coach for results by teaching members how to set goals, define objectives, and create a plan of action
- Adopt a holistic approach to financial planning and retirement education
- Encourage members to develop their own personal financial plans
- Empower plan members to find healthy work-life balance beyond the realm of financial issues