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Supplemental Pension Plans

Checklist to Improve Supplemental Pension Plan Governance

This checklist aims to improve the supplemental pension plan governance. It specifies the good practices and legal obligations related to the main loopholes and errors that Retraite Québec has observed in overseeing pension plans.

The checklist is for the pension committee, which is the administrator of a supplemental pension plan. With the necessary modifications, it is also for the following administrators:

The checklist is not for the financial institution that administers a simplified pension plan. It must refer to Newsletter number 30: Devoirs de l'établissement financier qui administre un régime de retraite simplifié (The duties of a financial institution that administers a simplified pension plan; French only).

1. Role, obligations and responsibilities of the pension committee

1.1 Lack of knowledge regarding the role and obligations of the pension committee

The pension committee is the plan administrator and the plan trustee. Its role is to ensure the financial management and daily administration by implementing adequate means to:

  • protect the benefits of the members and beneficiaries;
  • maintain and increase pension fund assets in accordance with the investment policy.

Like any person who administers the property of others, the committee has obligations and must take the appropriate steps to ensure that the rights of all parties to the plan are complied with.

To fulfill its mission, the pension committee must make sure that a number of duties are carried out. It is important that the committee know its duties.

Since the administration of a plan is complex, the committee may use the services of key resources (service providers) to carry out some of these duties, such as an accountant, an auditor, an actuary, an attorney, a securities depositary, a portfolio manager or the employer who is party to the plan. If the pension committee acts on the advice of an expert, it is deemed to have acted with prudence, however the committee must periodically reassess the choice of its key resources.

The committee can entrust those duties to key resources by means of a service contract, mandate or delegation of powers. When doing so, the committee must:

  • ensure to provide them with clear and precise instructions, preferably in writing;
  • indicate the nature of the services required, including a description of the tasks to be carried out and other provisions usually found in the type of contract to be entered into (including accountability mechanisms);
  • monitor their work. To do so, the committee must:
    • require that they are accountable for their work by providing, for example, periodic reports;
    • keep the accountability report documents and review them to ensure that the services have been provided appropriately and that they meet the committee's expectations;
    • understand the documents sent and not hesitate to ask for explanations or obtain justifications;
    • periodically assess work (competitive price, competence, adapting to new developments in the market, etc.);
    • ensure compliance with the legal requirements. For example, where the pension committee entrusts sending the summaries or statements to members (annual statement, statements of cessation of membership, etc.) to an insurance company or a firm of actuaries, the committee must make sure that the deadlines prescribed by the Supplemental Pension Plans Act are met and that their contents comply with the Act;
  • ensure that the annual information return This link will open in a new window. and, if applicable, the actuarial valuation report This link will open in a new window. or the notice on the financial position of the pension plan This link will open in a new window. are sent to Retraite Québec on time.

References

1.2 Unfamiliarity with the liability of the committee members

The voting members of the pension committee are deemed to have approved any decisions made by the pension committee. They are personally and solidarily liable unless they voice their dissent immediately. As a result, if the committee does not respect its obligations, the members can be brought before civil courts and forced to pay damages and interest. They are also deemed to have approved any decisions made in their absence unless they send a written notice of their dissent to the other members within a reasonable time after having read the decision.

Non-voting members are not liable for the decisions made by the committee. However, they are liable for the tasks that the pension committee entrusted to them.

To avoid being held liable for errors or omissions that could be detrimental to the parties, the committee must with prudence, diligence and skill, as would a reasonable person in similar circumstances. Therefore, it is important that the committee provide its members with liability insurance.

References

1.3 Committee members' duties carried out in the interest of those who appointed them

Each member of the committee must act in the best interest of the plan's members and beneficiaries considering their own interest to be the same as the interest of the other members and beneficiaries. A member of the pension committee must therefore act independently. He or she does not represent the persons who appointed him or her (e.g.: active members or the employer).

He or she must not carry out his or her duties in his or her own interest or that of a third party.

Reference

2. Documents for pension committee members

2.1 Unavailable or incomplete documents

In order to ensure the sound administration of the plan, the pension committee's secretary (or someone else appointed by the committee) must give access, for the members of the committee, to the documents and useful information to administer the plan and make informed decisions during meetings.

All members who have a voting right are solidarily liable for their actions or inaction, unless they voice their dissent.

E.g.: the plan text and its amendments, the internal by-laws of the committee, correspondence with Retraite Québec, the financial report or financial statements, the annual information return, and, if applicable, the actuarial valuation report or the notice on the financial position of the plan. Each member must read the documents. However, this right does not extend to the personal information of plan members, unless it is required in the performance of their duties.

References

3. The provisions of the plan text

3.1 Unfamiliarity with the plan text

The pension committee is the plan administrator, and therefore, must apply the plan text to ensure compliance with the minimum requirements set out in the Supplemental Pension Plans Act. Each member of the committee must read the plan text. The document constitutes an important source of information.

Where certain provisions of the plan text are unclear, the committee must interpret them, ask for the necessary opinions to validate their application and, where necessary, recommend that the authorized person or body (usually the employer) make amendments to the plan.

References

3.2 Plan text not up to date

The committee must have an updated copy of the plan text. For example, an amendment made to the collective agreement regarding the pension plan requires an amendment to the plan text in order to be applied. In the case of discrepancy between the two documents, the provisions of the plan text registered with Retraite Québec prevail. In addition, where there are many amendments, a consolidated text could make it easier to consult.

Reference

3.3 Unrecognized eligible employees

An eligible employee is a person who is in a category of employees for which the plan was established, regardless of the employee's status (e.g.: full-time, part-time, temporary, student, casual, seasonal, on-call). Therefore, where the plan is for:

  • all the employees, they are eligible, regardless of their status;
  • unionized employees, only the unionized employees are eligible, regardless of their status.

References

3.4 Membership requirements not met (no membership or late membership)

The pension committee must implement a procedure specifying that the employer must inform the committee of the arrival of all new employees eligible for the plan. However, it is the committee's responsibility to ensure the new eligible members (whether they are part-time, full-time, temporary, students or other) join in accordance with the provisions of the plan text.

The committee must also provide a written summary of the pension plan and a brief description of the member's rights and obligations under the plan and the Supplemental Pension Plans Act, as well as a statement of the main advantages of membership in the pension plan.

The minimum requirements set out in the Supplemental Pension Plans Act must also be met, that is, allowing membership to an employee who is part of the category covered by the plan and who, during the previous calendar year:

  • has received from the employer a remuneration equal to or greater than 35% of the maximum pensionable earnings ($23 310  = 35 % of the MPE in 2023 = 35 % of $66 600) ; or
  • completed at least 700 hours of employment with the employer.

References

3.5 Definition of salary or remuneration not met for the calculation of contributions

The pension committee should ensure that the definition of salary or remuneration provided for in the plan text is met by the employer, that is, that the overtime hours, bonuses and other sources of remuneration provided for therein are taken into account in the different calculations, if applicable.

Reference

3.6 Incorrect rate when calculating contributions

The committee must ensure that the contribution rate used corresponds to the one provided for in the plan text.

References

3.7 Administration expenses paid by the pension fund when they should not

Unless otherwise indicated in the plan text, it is provided for in the Supplemental Pension Plans Act that administration expenses will be paid by the pension fund, for example, the expenses for training pension committee members. Therefore, if the plan text provides that the employer pay for administration costs, they cannot be deducted from the pension fund.

References

4. Internal by-laws

4.1 No internal by-laws established

The pension committee must establish internal by-laws also referred to as "rules of internal administration", which provide for the mechanisms and rules necessary to ensure the proper operation of the pension committee as well as the pension plan's governance rules.

References

4.2 Incomplete internal by-laws

The pension committee must cover its own operating rules, as well as the plan's governance rules in the internal by-laws. The operating rules are the ones that ensure that the committee's activities run smoothly, whereas the governance rules regard the structure and processes used to oversee, manage and administer the plan. These rules include the following:

References

4.3 Internal by-laws not applied

The committee must ensure that the elements provided for in the internal by-laws take into account the plan's characteristics and its administration and that they are correctly applied. To do so, it is important that all members obtain a copy, read them and review them as needed.

References

5.Funding policy

5.1 No funding policy

A funding policy is required for defined-benefit pension plans (including negotiated‐contribution pension plans and member-funded pension plans), for defined-contribution and defined-benefit pension plans as well as for target-benefit pension plans. The person or body empowered to amend a plan, for example, the employer, must establish the written funding policy, review it and send it to the pension committee without delay. The policy's purpose is to establish the principles related to plan funding. The principles must guide the committee in carrying out its duties, including establishing the investment policy.

References

6. Investment policy

6.1 No investment policy

Where the pension committee chooses plan investments, it must develop a written investment policy. The policy must take into account the type of pension plan, its characteristics, financial commitments and funding policy.

Whenever an investment policy is adopted or reviewed, the committee must ensure that it contains at least the mandatory elements provided for in the Supplemental Pension Plans Act, that is:

  • expected rate of return;
  • degree of risk associated with the portfolio;
  • distribution of assets;
  • la répartition de l'actif;
  • portfolio diversification measures;
  • time schedule for the valuation of the portfolio;
  • rules for monitoring portfolio management;
  • rules applicable to the review of the investment policy;
  • rules applicable to the valuation of fund investments that are not traded on an organized market;
  • rules applicable to loans, securities, the use of financial instruments and voting rights, if applicable.

Where the members choose plan investments, the committee does not have to establish an investment policy. The committee must ensure that members have at least three diversified investment options and that the investments have different degrees of risk and expected rates of return, which will allow them to put together a portfolio adapted to their needs.

References

6.2 Unreviewed policy

The investment policy must reflect the current situation of the plan. If the investments represent a high risk, the pension committee must put together a diversified investment portfolio so as to minimize the risk of major losses.

The committee must ensure that the policy is complied with and reviewed periodically to keep pace with changes in the plan and financial markets.

References

7. Internal controls

7.1 Insufficient internal controls

The pension committee must have internal controls that present the measures to prevent and detect irregularities, errors and fraud. They are necessary to ensure that the pension plan is in conformity with the Supplemental Pension Plans Act and that its provisions are complied with.

Internal controls must be included in the internal by-laws established by the pension committee. They can include:

  • checklists for the various tasks to be carried out (e.g.: have eligible employees join the plan, provide the documents to government authorities, choose key resources and evaluate their work, etc.);
  • certificates from key resources, e.g.: an employer, actuary or accountant attesting to their application of plan provisions and actuarial and accounting standards;
  • regular verifications by key resources (e.g: calculations, procedures for paying benefits and refunds, etc.);
  • an analysis of complaints lodged by plan members.

All the controls ensure that:

Reference

  • Controlling risks: step 9 of the 11 steps to establish sound administrative processes from the Sound Pension Plan Administration collection
8. Pension committee meetings

8.1 No meetings or insufficient number of meetings

The frequency of meetings must be specified in the internal by-laws, and the committee must meet often enough to allow its members to carry out their duties. Holding only one meeting just before the annual meeting is usually not enough to adequately oversee the plan's administration. Pension committee meetings provide an opportunity for each committee member to express themselves on the matters submitted to them and to participate in decision-making by voting.

The committee should meet as often as necessary to properly oversee the day-to-day administration of the plan and the work of those to whom the committee has entrusted certain duties. Some committees meet several times a year to discuss current business and hold special meetings as often as necessary

A committee that delegates all of its duties will usually meet less frequently. However, it must still hold meetings to ensure that the delegatees are properly carrying out their duties.

References

8.2 Missing or incomplete agenda or minutes

To ensure that the various topics will be discussed at the meeting, the pension committee must invite all members of the committee in advance by sending them the agenda. The members must also receive, within a reasonable period of time, all the documents they will need to prepare and attend the meeting.

After each meeting, detailed minutes must be drafted. The pension committee must approve all minutes in order to ensure they reflect the discussions and decisions, as well as to note the dissents. Substantial minutes allow to justify the decisions that were made by the pension committee. In addition, they protect, to a certain extent, the members of the pension committee since they can be used to demonstrate that the members have fulfilled their obligations.

References

9. Training of pension committee members

9.1 Insufficient training or training available to new committee members only

The pension committee must make sure that all members acquire the knowledge they need to carry out their duties. The internal by-laws must specify the measures to be taken to provide training for committee members. In addition, the committee must allocate a reasonable budget for training in-house or outside the organization.

Without being a pension plan expert, each member should understand the implications of the decisions he or she makes. Continued training allows each member of the committee to update their knowledge.

References

10. Resignation of pension committee members

10.1 No notice sent to Retraite Québec or the content of the notice is incomplete

Where a member of the pension committee resigns, the individuals designated by the plan to appoint a replacement must be informed of the resignation in writing. If the plan provides no specific rule in this regard, the member must inform the other committee members and inform Retraite Québec of his or her resignation. The notice must provide the reason for the resignation as well as the effective date. The date corresponds to the date on which the notice was received or to any later date indicated on the notice. Committee members cannot resign retroactively.

Furthermore, if a member resigns without a serious reason at a time when the committee or the pension plan is experiencing serious problems, he or she is bound to make reparation for injury caused by his or her resignation. In addition, the resignation of a member does not discharge him or her of his or her liability as a committee member for decisions made during his or her term.

References

11. Plan summary

11.1 No plan summary or incomplete content

The pension committee must provide all eligible members or employees with a written summary of the pension plan, that is, the pension plan's information booklet. The summary must be written in plain language and contain the following elements:

  • a description of the main provisions of the plan text, including the ones regarding membership, contributions, pensions, benefits, refunds and transfers;
  • the information mentionned in the Regulation respecting supplemental pension plans, including the indexation rate of pensions, the rules for transfer into another pension plan, the framework agreements, the nature of the fees that may be imposed on members as well as the rules that apply when members determine the investments;
  • a brief description of the rights and obligations of members under the plan and the Supplemental Pension Plans Act;
  • a statement of the main advantages of plan membership.

It is important to update the summary and that it reflect all the amendments made to the plan text as the summary is the only document given to employees and members to familiarize themselves with the plan.

References

11.2 Summary not provided to all eligible employees or members or summary sent late

The summary must be provided within 90 days of the date on which an employee became eligible for the plan or became a member. For example, where the plan is for:

  • all employees, they must receive the plan summary within 90 days of being hired;
  • all unionized employees, they must therefore receive the plan summary within 90 days following the time when they became unionized.

Reference

12. Annual meeting

12.1 No annual meeting

Like anyone else who administers another's property, the pension committee must account for its administration. It does so during an annual meeting. The committee must call the meeting within nine months after the end of each fiscal year of the plan. The meeting can be held later, but within a reasonable time. The annual meeting is the principal means by which members and beneficiariesare informed on the situation of their pension plan.

References

12.2 Forgetting certain recipients when sending the notice of meeting

The notice of meeting for the annual meeting must be sent in writing to each active and non-active member, beneficiary and the employer.

Reference

12.3 Incomplete annual meeting agenda

As part of a sound administration, the notice of meeting should include the agenda listing the topics that will be discussed at the meeting.The topics are determined by the Supplemental Pension Plans Act and the Regulation respecting supplemental pension plans. Other topics can be added. All topics should allow:

References

12.4 No minutes

Each topic covered during the annual meeting should be recorded in sufficient detail in the meeting's minutes. Keeping minutes for meetings, archiving them and making them available is an excellent way to make plan administration more transparent.

Reference

  • Annual meeting from the Sound Pension Plan administration collection
13. Right to transfer

13.1 Failure to meet deadlines

Where a member ceases to be an active member of the plan (e.g.: where the member lost or left his or her employment), the pension committee must provide the member with a statement of his or her benefits accrued under the plan within 60 days of being informed.

Members of a defined-contribution pension plan can therefore request the transfer of their benefits:

  • within 90 days following receipt of their statement of cessation of active membership when they are more than 10 years under the normal retirement age provided for in the plan (e.g.: being under age 55 if the normal retirement age is 65);
  • once every 5 years, as of the date on which active membership ceased, for a period of 90 days;
  • at all times when members are less than10 years under the normal retirement age provided for in the plan (e.g.: being age 55 or over if the normal retirement age is 65), provided payment of the pension has not begun.

Members of a defined-benefit pension plan can therefore request the transfer of their benefits. The request must be filed within 90 days:

  • following receipt of their statement of cessation of active membership;
  • once every 5 years, as of the date on which active membership ceased;
  • when they are 10 years from the normal retirement age provided for in the plan (e.g.: at age 55 if the normal retirement age is 65). This represents their last opportunity to be entitled to the transfer, unless the plan provisions are more generous.

The pension committee has 60 days to reply following receipt of a request for the transfer of benefits.

Reference

14. Refund of small amounts

14.1 Refund not offered

A member who ceases to be an active member is entitled to a refund of the value of his or her benefits (e.g.: with a deposit of his or her benefits in an RRSP or with a cash payment) if the value is less than 20% of the maximum pensionable earnings (MPE) in accordance with the Act respecting the Québec Pension Plan for the year during which the member ceased active membership.

For the refund, voluntary contributions and amounts transferred from another plan that were not converted into a retirement pension are not taken into account.

The refund is taxable. However, income tax can be deferred if the member can transfer the amounts directly to an RRSP or an RRIF.

References

14.2 Member not informed in advance of the refund imposed by the pension committee

The pension committee can decide to refund the benefits of a member who ceased to be an active member and whose value is less than 20% of the MPE for the year during which the member ceased to be an active member. The committee must therefore inform the member of its decision in writing and the member has 30 days to indicate how he or she would like his or her benefits to be paid (e.g., cash payment or a transfer to an RRSP).

If the member does not inform the committee of his or her choice, the committee will decide by itself which payment method will be used, for example, a cash payment. The notice sent to the member must mention this rule.

Reference

15. Untraceable persons

15.1 No request to find untraceable persons is made with Retraite Québec

Where an untraceable Québec member or beneficiary is entitled to a refund, a benefit or other amounts owed to him or her, the pension committee must file a request to find untraceable members or beneficiaries with Retraite Québec.

If Retraite Québec is able to locate a member or beneficiary, it will contact him or her directly to inform him or her that he or she may be entitled to benefits under a pension plan and ask him or her to contact the pension committee at the address indicated. This way of operating is intended to preserve the confidential nature of the information Retraite Québec has about its clients.

The pension committee can also seek the assistance of a tracing firm to locate these persons. However, if the search is unsuccessful, the committee must ask Retraite Québec to do a search.

If a member or beneficiary remains untraceable, the committee must remit to Revenu Québec the value of the benefits within three years following the due date of the amounts in question. The due date is either:

  • on 31 December of the year during which the member turns 71;
  • the date on which the member dies. However, where a pension committee is notified of a death that occurred more than three years prior, the unclaimed property must be remitted in the first quarter of the year following the end of the fiscal year of the plan during which the confirmation of the death was received;
  • the date as of which a member may request the refund of the value of his or her benefits if it is less than 20% of the MPE, that is, $13 700, following a decision made by the pension committee to force the refund.

References

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