Rgie des rentes du Qubec - Accueil Retraite Qubec originale franaise disponible sur demande. Legal deposit – 1st quarter 2008 ... 6 Rgie des rentes du Qubec Supplemental Pension

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  • Rgie des rentes du Qubec

    Supplemental Pension Plans

    of a pension committee

    Admin is te r ing a pens ion p lan we l l Ins ta lment 2

  • Acknowledgements

    We wish to thank all those who contributed to the preparation and validation of this document, as well as the pension committee members who were on the reading committee.

    This publication does not have force of law. In cases of conflicting interpretation, the Supplemental Pension Plans Act and its regulations prevail over the contents of this publication.

    This document is also available for downloading on the Web site of the Rgie des rentes du Qubec (www.rrq.gouv.qc.ca).

    Version originale franaise disponible sur demande.

    Legal deposit 1st quarter 2008

    Bibliothque lgale du Qubec

    ISBN 2-550-42208-2 PDF : ISBN 2-550-46196-7

  • Rgie des rentes du Qubec Supplemental Pension Plans 3

    Administering a pension plan well Instalment2

    of a pension committee

    A pension committee is the administrator of a pension plan. It is an important role that requires its members to have a thorough knowledge of the committees obligations and responsibilities.

    To administer a plan well, it is important for the pension committee to adopt operating and governance rules based on sound management principles. Instalment 1 introduced six of the principles and explained how to implement them. The first principle states that each member must have a clear understanding of the committees role and responsibility. This is an essential element to ensure sound administration of a plan.

    This instalment discusses the fundamental principles of the role, duties and responsibility of a pension committee and its members. It also discusses the committees obligations when it entrusts duties to service providers, the liability of its members and ways to reduce the risk of lawsuits.

    We will see that a thorough understanding of the committees obligations and the adoption of internal by-laws to provide a framework for its operations and governance will ensure that the committee acts judiciously in carrying out its responsibilities.

  • Administering a pension plan well Instalment2

    Rgie des rentes du Qubec Supplemental Pension Plans4

    1. The role of the pension committee

    In a pension plan, the contributions of the employer and those of plan members (if they pay contributions) are put into a pension fund. Although this fund is used to pay out benefits set forth in the plan, it does not belong to the employer or the members:1 it is a trustfund. The pension committee that administers the pension fund is the trustee.2 It assumes the duties of an administrator of the property of others. The provisions of the Civil Code that apply to persons who are charged with the administration of property that is not their own are indicated at the end of this instalment.

    The role of a pension committee is to ensure the daily financial and administrative operations of the pension plan by implementing adequatemeans to protect the benefits of the plans members and to conserve and enhance pension fund assets. Its role is similar to that of a corporate board of directors and is distinct from the role of the employer,3 who decides to establish a pension plan, to amend it and to terminate it.

    To fulfill its mission, the pension committee must ensure that a number of duties are carried out, including the following:

    membership of eligible employees in the plan;

    payment of contributions to the pension fund;

    forwarding of information to members of the plan, as prescribed by law (such as an annual statement of benefits and a pension plan summary);

    calling and holding of an annual meeting;

    payment of benefits set forth in the plan;

    choosing service providers;

    choosing investments;

    supervision of the work of service providers;

    reporting required information to the Rgie des rentes du Qubec and the Canada Revenue Agency.

    The pension committees internal by-laws must provide for the mechanisms and rules needed to ensure the proper operation of the pension committee and the sound administration of the pension plan.

    1. In this instalment, the term member includes active members, retirees and beneficiaries.2. Supplemental Pension Plans Act, section 150. In pension plans that have less than 26 members,

    the employer can serve as the pension committee.3. In some cases, it is the union or employer and union who hold these powers.

  • Rgie des rentes du Qubec Supplemental Pension Plans 5

    Administering a pension plan well Instalment2

    As the plans administrator, the pension committee must operate in compliance with legal requirements and also see to it that pension plan provisions are enforced. If some provisions are unclear, the committee must interpret them, ask for the necessary opinions to validate their application and, where necessary, recommend changes to the plan. The committee may also make recommendations to correct any shortcomings it notes in the administration of the plan.

    Moreover, as manager of the pension fund, the pension committee has full administration of the funds investments. It must develop an investment policy that takes into account the characteristics of the pension plan and it must review and revise the investment policy on a regular basis.

    As a general rule, all investment categories are available to the pension committee. The investments selected by the committee must, however, be in conformity with all applicable laws, which may limit or prohibit the use of some of them. Investments must also be made in conformity with the investment policy and any investment rules contained in the plan text, including rules on term contracts and other financial instruments.

    The pension committee must make an effort to put together a diversified investment portfolio so as to minimize the risk of large losses, unless the circumstances make it reasonable to act otherwise.

    Some pension plans provide that each plan member manages the investment of the contributions credited to his or her account. In that case, the pension committee must ensure that the members have at least three diversified investment options and that the investments have different degrees of risk and expected rates of return are different, which will allow each member to put together a portfolio that is generally well adapted to his or her needs. The committee must also provide the plan members with information and tools to aid them in choosing their investments.

    2. The duties of the pension committee

    Like any person who administers the property of others, the pensioncommittee has the legal obligation to exercise the prudence, diligence and skill that a reasonable individual would exercise in similar circumstances. It must act with honesty and loyalty, in the best interest of plan members.

    Furthermore pensioncommitteemembers who have particular knowledge because of their profession

    or business experience must use such knowledge or experience in administering the pension plan. Moreover, all pension committee members must

    avoid conflicts of interest.

    Concretely, the obligation to act with prudence means that a pensioncommitteethat does not have sufficient knowledge should consult experts or entrust tasks to competent people. The more the knowledge of committee members is limited, the more important it is for the committee to call upon such persons.

  • Administering a pension plan well Instalment2

    Rgie des rentes du Qubec Supplemental Pension Plans6

    2.1 Transferring functions

    Since the tasks are numerous and sometimes complex, the committee can transfer functions to other individuals, but must ensure that the duties are correctly carried out. The service providers whose expertise is required (such as an accountant, actuary, securities depositary, portfolio manager, or the employer who is party to the plan) are called keyadministrativeplayers.4

    Important!The pension committee can entrust functions to a service provider. One or more of the committees members or another person may designate a service provider, so long as they are authorized to do so by the committee.

    When a service provider is designated to carry out a function, the committee must ensure that the individual has the necessary skills, give him or her clear instructions and adequately monitor his or her work. For that purpose, the rules for choosing, monitoring and evaluating service providers must be provided for in the internal by-laws. For example, the by-laws could require the committee to put out a call for tenders to invite those of its choosing to submit an offer of service.

    2.2 Choose the type of contract

    When a pension committee entrusts some or all of its functions to a service provider, the legal responsibility of the pension committee with respect to those functions depends on the nature of the contract between the committee and the service provider, unless

    a discretionary power of the committee is involved (see section 2.2.3). The contract may be a mandate, a service contract or a delegation.

    A pension committee does not have the power to carry out certain tasks. It must call on professionals who have exclusive

    competence to carry out such tasks. For example, the committee must retain the services of a chartered accountant to verify

    the plans financial statements. To do so, the committee must conclude a professional services contract with a

    qualified professional. Execution of the task cannot be entrusted by means of a mandate or a delegation.

    4. Instalment 4 discusses key administrative players.

  • Rgie des rentes du Qubec Supplemental Pension Plans 7



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