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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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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.
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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”.
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
Plan Governance May differ by type of plan:
Single employer;
Multi-employer;
Jointly sponsored.
PENSION LAW &
FIDUCIARY DUTIES
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
Main Fiduciary DutiesTwo Overarching Fiduciary Duties:
1) Duty of prudence.
2) Duty of loyalty.
PENSION LAW &
FIDUCIARY DUTIES
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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 funding policy (s. 44)
And this policy must meet “the prescribed criteria”.
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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 Statement of Investment Policies and Procedures (s. 43)
And this policy must meet “the prescribed criteria”.
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
Selection of Trustee Nomination
Vote
Selection Criteria
Length of Appointment
Evaluation of Trustee
PENSION LAW &
FIDUCIARY DUTIES
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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.
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
Capital Stewardship
Instructor: Peter Chapman
Executive Director, SHARE
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
CAPTIAL
STEWWARDSHIP
Responsible Pension InvestmentDefinition
Responsible pension investment is the integration of environmental,
social and governance (ESG) considerations into investment
management processes.
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
On current trajectories:
“the economy will contract
by up to 20%.”
- Stern Report (2006)
Financial Market Failure:Climate change
CAPTIAL
STEWWARDSHIP
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
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100110120130
2010 2011 2012 June 2013
Nu
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ies
Trends We’re Watching“Say on Pay” votes on executive compensation
CAPTIAL
STEWWARDSHIP
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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
Suite 1200, 1166 Alberni Street, Vancouver, BC V6E 3Z3 Canada T 604 408.2456 F 604 408.2525
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