Régie des rentes du Québec Supplemental Pension Plans Documents Administering a pension plan well Instalment 6
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 Régie des rentes du Québec (www.rrq.gouv.qc.ca). Version originale française disponible sur demande. Legal deposit 4th quarter 2012 Bibliothèque nationale du Québec ISBN 2-550-42208-2 PDF: ISBN 2-550-46196-7
Table of content Introduction 5 1. Pension plan documents 6 1.1 Plan text and amendments 6 1.2 Collective agreements, orders and arbitration awards for unionized employees, and agreements with non-unionized employees 7 1.3 Decisions respecting amendments 8 1.4 Laws and regulations 8 2. Pension committee documents 9 2.1 Internal by-laws 9 2.2 Administrative policies 9 2.3 Administrative procedures 10 2.4 Contracts with service providers 10 2.5 Pension committee meeting documents 10 2.6 Register of interests 11 2.7 Notice of annual meeting and meeting documents 11 2.8 Member designation documents 11 2.9 Correspondence 11 3. Financial documents 12 3.1 Financial report required under the Supplemental Pension Plans Act 12 3.2 Annual information returns 12 3.3 Investment policy 13 3.4 Investments offered to members 13 3.5 Actuarial valuation 13 3.6 Reports and certifications of service providers 14 4. Books and registers 15 4.1 Bookkeeping 15 Régie des rentes du Québec Supplemental Pension Plans 3
4.2 Register of contributions 16 4.3 Register of benefits 17 4.4 Administration costs 17 5. Document management policy 18 5.1 Document retention 18 5.2 Access to information by pension committee members 19 5.3 Protection of personal information 19 Conclusion 20 4 Régie des rentes du Québec Supplemental Pension Plans
Documents As explained in instalment 2, The role and responsibility of a pension committee, the pension committee s role is to ensure the financial management and administration of the pension plan while protecting the benefits of members. In order to make informed decisions and carry out its duties in a prudent, diligent and competent manner, each committee member must have all the relevant documents concerning the pension plan. The documents must be reliable and up-to-date. This is one of the cornerstones of sound plan administration, as set out in instalment 1, Sound administration: what you should know. To effectively carry out its role and ensure, in particular, that the right benefits are paid to the right people, the committee must keep thorough records. For that purpose, the committee must adopt internal by-laws that stipulate the rules regarding bookkeeping and records, in addition to other rules. Sound administration therefore requires in-depth knowledge and effective management of the various plan administration documents. The purpose of this instalment is to inform pension committee members of the main documents concerning plan administration, as well as stress the importance of taking steps to retain those documents, ensure their completeness and protect the personal information they contain. Régie des rentes du Québec Supplemental Pension Plans 5
1. Pension plan documents One of the pension committee s main roles is to ensure that the rights of all parties to the plan are respected and that those parties uphold their obligations. The committee must also meet all legal requirements. The rights and obligations are described in the various plan documents. 1.1 Plan text and amendments The plan text is a contract that describes the rights and obligations of the members, beneficiaries, employer and pension committee. It is the pension committee s key tool. The Supplemental Pension Plans Act outlines the subjects that the plan text must address, including: plan eligibility and membership requirements; employer and member contributions, in the case of a contributory plan; the benefits payable upon certain events, such as end of employment, death or retirement; the makeup of the pension committee along with the conditions and timeframes for designating and replacing its members. The plan text can be amended, subject to the terms set out therein. The pension committee must therefore ensure that it has an up-to-date version of the text (i.e. the original text and all subsequent amendments to it). That version can be the original text along with texts amending certain provisions of the original text. If the plan has been substantially or frequently amended, a consolidated version incorporating all amendments to the original text can be a practical option in order to reduce the risk of error. 6 Régie des rentes du Québec Supplemental Pension Plans
The plan text and amendments must be registered with the Régie des rentes du Québec and the Canada Revenue Agency. Regardless of who has the power to amend the pension, the pension committee (as the plan administrator) is responsible for registering those documents. 1 Important A plan amendment can take effect only if it has been registered with the Régie des rentes du Québec. Transfer framework agreements can also complete the plan text. Under such agreements, members can transfer their benefits to other pension plans covered by the agreement. In general, transfer conditions are different from those that apply to transfer vehicles, such as a locked-in retirement account (LIRA) or a life income fund (LIF). If the conditions are different, the framework agreements must be registered as an integral part of plan provisions. 1.2 Collective agreements, orders and arbitration awards for unionized employees, and agreements with non-unionized employees A collective agreement can cover a pension plan with regard to plan provisions or amendments. It can also provide that pension plan benefits be maintained for the duration of the agreement. An agreement separate from a collective agreement can also be entered into by the employer and a group of employees. If a disagreement regarding working conditions arises, an arbitrator must sometimes make a ruling. The arbitration award then serves as the collective agreement. In addition, pursuant to an order, a collective agreement may apply not only to the parties involved but also to the employers and employees in a given field of activity. Note that an agreement, a collective agreement or an arbitration award are not sufficient to amend a plan. The plan provisions themselves must be amended to reflect the document in question, and the amendments must be registered. Thus, if the documents contain discrepancies, the provisions registered with the Régie des rentes du Québec take precedence. 1. The Application for Registration of an Amendment to a Pension Plan form on the Régie des rentes du Québec s Web site lists all the documents and information that must be enclosed with the application. Régie des rentes du Québec Supplemental Pension Plans 7
1.3 Decisions respecting amendments The plan text indicates what body has the right to amend it. Often it is the employer or, if the plan is negotiated, the employer and the union. However, regardless of the body entitled to amend the plan, the employer must consent to its membership and to any changes to its obligations further to an amendment. The employer s decision to amend a non-negotiated pension plan or to consent to its membership or a change to its obligations can take various forms. Most often such a decision is made in a resolution by the employer s board of directors. For a negotiated plan, decisions are usually enshrined with the signing of the collective agreement. 1.4 Laws and regulations The pension committee must also meet all legal requirements. In Québec, the main laws applicable to pension plans are the Supplemental Pension Plans Act and the federal Income Tax Act. The Supplemental Pension Plans Act provides for minimum benefits. If a plan text contains provisions that do not comply with the minimum benefits requirements of the Act, or if the text makes no mention of minimum benefits, the pension committee must apply the provisions of the Act. However, the plan s provisions can be more advantageous than those listed in the Act. The Income Tax Act concerns the fiscal aspects of pension plans. Specifically, it sets out the maximum contributions that can be paid and the maximum pensions that the plan can pay. 2 In addition to these two laws, the pension committee must also take into account other laws, such as the Civil Code of Québec, the Act Respecting Labour Standards, the Act Respecting Industrial Accidents and Occupational Diseases and the Charter of human rights and freedoms. In case of doubt, the committee must obtain the advice of competent persons. If workers from another province participate in a pension plan registered in Québec, the laws of those provinces apply to them, particularly the laws concerning pension plans. 2. The federal Income Tax Act takes precedence over the provincial Taxation Act with regard to such matters. 8 Régie des rentes du Québec Supplemental Pension Plans
2. Pension committee documents Pension committee documents enable committee members to effectively perform their duties, make informed decisions and maintain evidence to that effect. 2.1 Internal by-laws 3 Internal by-laws set out the rules concerning pension committee operations and governance. These rules help committee members fulfil their duties and are a key component of sound pension plan administration. In adopting and following internal by-laws suited to the plan s characteristics, the committee exercises due prudence and thereby protects itself against legal recourse. Each pension committee member must have a copy of the by-laws and be familiar with their content. 2.2 Administrative policies An administrative policy sets out the general principles adopted by the pension committee with regard to plan administration. Its purpose is to ensure that plan provisions are applied and that plan administration is carried out in a uniform and consistent manner. An administrative policy can be used where certain plan provisions are open to interpretation. In such a case, the policy gives the committee s interpretation of those provisions. An administrative policy can also determine the rules to be followed where no rules are set forth in the legislation or the plan text. For example, a policy could cover the method for calculating interest on late contributions. 3. For more information, see Newsletter number 22, Internal by-laws. Régie des rentes du Québec Supplemental Pension Plans 9
2.3 Administrative procedures An administrative procedure lists the steps to follow, the actions to take and the methods to use in order carry out a given task. Its purpose is to ensure that plan provisions are applied in a uniform and consistent manner. It also serves as a checklist to ensure that nothing has been forgotten. Administrative procedures determine the steps involved in plan administration. They can include, for example, the procedures for completing the forms to apply for plan membership or request a calculation of benefits. These procedures are generally listed in a manual or guide that is given to any person responsible for applying them. 2.4 Contracts with service providers 4 Plan administration requires that several tasks be carried out, the complexity of which can vary widely. This is why the pension committee normally uses service providers to provide advice or perform certain tasks. The contract with service providers generally specifies the nature of their duties, their rates and the relevant timeframes. The contract also indicates the obligations of all parties, the frequency of meetings and followup, the reports to be provided, the confidentiality requirements, the rules regarding conflicts of interest and the consequences of failing to uphold those rules. 2.5 Pension committee meeting documents 5 The pension committee must hold meetings to monitor plan administration and make any relevant decisions. The internal by-laws must set the rules for these meetings. Accordingly, and in order to make informed decisions at these meetings, they must be carefully planned. A notice of meeting is normally sent to plan members in order to inform them that a meeting will be held. The notice should be accompanied with an agenda listing the various topics that will be covered, along with documents to help members prepare. Minutes should be drafted after the meeting and sent to all committee members so that they can ensure the minutes truly reflect the tenor of the meeting. The committee should keep the minutes and all documents concerning pension committee meetings, in particular the reports by experts or service providers. 4. For more information, see Instalment 4, Key players in plan administration. 5. For more information, see Instalment 3, How a Pension Committee Operates. 10 Régie des rentes du Québec Supplemental Pension Plans
2.6 Register of interests 6 The pension committee must keep a register of interests at its office indicating a committee member s interests in a business that may cause his or her personal interests to conflict with the duties of his or her office. The register also indicates the nature and value of any rights a pension committee member may have in the pension fund (a claim, for example). The rights of a member or beneficiary do not need to be included in the register. Any interested person may examine the register without charge during normal working hours. 2.7 Notice of annual meeting and meeting documents 7 The pension committee must invite the employer and all plan members and beneficiaries to an annual meeting. The notice of meeting should be accompanied with the agenda. As with pension committee meetings, minutes must be kept of the annual meeting and the elections. 2.8 Member designation documents 8 Member designations made at the annual meeting should be recorded in its minutes. The designation of other members should be indicated in a written notice signed by the authorized person or, for a member designated by the employer, in a resolution by the employer s board of directors. 2.9 Correspondence Eligible workers, members and beneficiaries are entitled to consult any correspondence between the Régie des rentes du Québec and the pension committee in the 60 months prior to the consultation request, with the exception of correspondence concerning another worker, member or beneficiary. In addition, a service provider must send the pension committee information and documents received from government authorities that raise questions regarding the extent to which the plan or the plan s administration is in conformity with applicable legislation. 6. For more information, see Instalment 2, The role and responsibility of a pension committee. 7. For more information, see Instalment 5, Information for Members and Beneficiaries. 8. For more information, see Instalment 3, How a Pension Committee Operates. Régie des rentes du Québec Supplemental Pension Plans 11
3. Financial documents The pension committee uses a number of documents which can vary depending on the type of plan to help it manage the pension fund and monitor its financial situation. The main documents are listed below. 3.1 Financial report required under the Supplemental Pension Plans Act The pension committee must have the financial report required under the Act prepared. This report should address plan assets as at the end of the fiscal year and any changes thereto since the previous fiscal year. The report should cover the following: all contributions made; the benefits paid; plan administration and investment management costs; overall investment income in a given fiscal year. This information is used to complete the annual information return. Note: The financial report does not show benefit commitments, which are indicated in the financial statements. The financial report or financial statement must be audited by a chartered professional accountant (CPA) authorized to use the CA auditor designation. Subject to certain conditions, an audit is not required for plans that have fewer than 50 members and beneficiaries, and net assets under 1 000 000 $. 3.2 Annual information returns Annual information returns must be filed with the Régie des rentes du Québec and the Canada Revenue Agency (CRA). The returns are prepared using forms provided by the Régie and the CRA. A single combined form can also be used. That form must be sent to the Régie. These returns provide a financial and statistical picture of the most recent fiscal year. Among other things, they address pension plan membership, plan contributions and plan assets. The auditor of the financial report required under the Act must complete the section of the return concerning him or her. The annual information return for the Régie des rentes du Québec must be signed by two pension committee members, who must certify that a copy of the return was sent to each committee member. The committee cannot delegate signing authority for the annual information return. It must therefore be signed by two committee members, even if plan administration has been delegated. 12 Régie des rentes du Québec Supplemental Pension Plans
3.3 Investment policy The pension committee chooses plan investments. It must ensure that the pension fund is invested in appropriate and diverse securities in order to deliver optimal returns. The pension committee must adopt an investment policy in keeping with the plan s characteristics and its financial obligations. The policy must address the subjects set out in the Act, specifically liquidity requirements, the proportion of assets that may respectively be invested in debt securities and equity securities, and the types of authorized investments. The policy must be revised regularly. 3.4 Investments offered to members 9 Where a pension plan allows members to choose their investments, the pension committee does not have to adopt an investment policy. However, the committee must ensure that members can choose from at least three different investments and have the tools and information they need to make investment decisions. The committee must also ensure that the investments and services offered by the financial institution are appropriate and that fees are competitive. 3.5 Actuarial valuation For defined benefit plans, the Régie des rentes du Québec and the Canada Revenue Agency require that an actuarial valuation report be filed periodically. The report must be prepared by an actuary who holds the title of Fellow from the Canadian Institute of Actuaries. The actuarial valuation report gives the value of plan assets and lists plan obligations. It indicates whether the plan has surplus assets or a deficit. The report estimates the plan s funding ratio (the plan s assets in relation to the amounts required to pay benefits as they come due). The report also estimates the degree of solvency (the plan s assets in relation to the amounts required to pay benefits if the plan were terminated). Lastly, the report determines the contributions that must be made in coming years to fund benefits as well as amortize deficits. 9. For more information, see Newsletter number 20, Application of the Guidelines for Capital Accumulation Plans of the Joint Forum of Financial Market Regulators to supplemental pension plans. Régie des rentes du Québec Supplemental Pension Plans 13
3.6 Reports and certifications of service providers In order to monitor the pension plan s financial situation and the work of the various service providers, the pension committee should ask the providers to file reports and provide certifications regarding plan affairs. For example, the portfolio manager could certify that the investment policy was followed at all times. The frequency and content of the reports and certifications should be indicated in the contract that the pension committee enters into with each provider. 14 Régie des rentes du Québec Supplemental Pension Plans
4. Books and registers The primary goal of a pension plan is to provide plan members with a retirement income funded by contributions to the pension fund. To accomplish this, the pension committee must keep books and registers, which will be used to determine the individual benefits of members and verify cash inflows and outflows. 4.1 Bookkeeping To ensure that people receive the benefits to which they are entitled, it is crucial to keep records of the information for each member and beneficiary. The documents that members, beneficiaries, spouses or other persons send to the pension committee must be kept. Those documents can include the following: application for membership; designation of beneficiaries; spousal renunciation of the death benefit, or the revocation of the renunciation; investment options; options regarding the type of the pension; application for a transfer or refund; statement of marital status; application for a statement of benefits for the purposes of partition; application for partition; judgment of divorce or of separation from bed and board; birth certificate; medical certificate; death certificate. Régie des rentes du Québec Supplemental Pension Plans 15
A copy of the documents that the pension committee receives must also be kept. Those documents can include the following: annual statements; termination statement; statement in the event of marital breakdown; transfer form for tax purposes (form T2151); pension adjustment, pension adjustment reversal and past service pension adjustment slips; tax slips concerning retirement income or refunds; confirmation of payment of benefits. Lastly, the information used to establish members benefits must also be kept, for example: date of birth; membership start date; contributions paid; remuneration; service credited. Although the pension committee is responsible for collecting and keeping information on plan members, this task is usually entrusted to the employer, an actuarial firm or a financial institution. The pension committee must therefore find out about the measures taken to ensure the completeness, reliability and retention of information. The committee must make sure the service provider understands that the information belongs to the pension plan and that the committee can obtain copies of or consult the information as necessary. 4.2 Register of contributions The pension committee must ensure that contributions have been paid into the pension fund. To do so, the employer can give the committee a copy of the notice it sends monthly to the securities depositary to indicate the contributions made by the employees and the employer. The pension committee can require the securities depositary to provide a report on the contributions paid and the payment date. This report enables the committee to reconcile the contributions indicated by the employer with the contributions indicated by the securities depositary. Even if the pension committee entrusts this duty to a service provider, as is often the case with small pension plans, the committee must nonetheless monitor the provider s work. 10 10. For more information, see Newsletter number 28, Rules regarding the payment of contributions into the pension fund. 16 Régie des rentes du Québec Supplemental Pension Plans
4.3 Register of benefits The pension committee must also monitor the payment of benefits. For retirement pensions, the securities depositary generally makes the payments. However, the pension committee must still notify the depositary of any new retirees or whether another type of payment must be made. The register of benefits, which indicates the amounts paid and the type of payment, enables the pension committee to verify whether payments by the depositary correspond to the committee s instructions. The register can also be used for information purposes, for example, to complete the annual information return or calculate pension adjustments. 4.4 Administration costs Unless plan provisions state otherwise, the pension fund covers plan administration costs, which mainly include the fees of service providers (e.g. portfolio manager, accountant or actuary) to whom the pension committee has entrusted certain duties. In order to meet its commitments and limit its liability, the pension committee must monitor and document costs related to its service providers. For example, the committee must provide regular followup of the work done and the expenses incurred in relation to those initially forecasted. In addition, the committee should set a maximum amount above which the service provider must obtain the committee s approval before continuing. To that end, the committee must keep a record of expenses (both incurred and expected). In addition, the committee should compare the expenses it has incurred with those indicated in the securities depositary s reports. The pension committee must use invoices and other documents from the service providers in order to document its followup. In addition to the expenses related to service providers, administration costs also include expenses related to the duties of pension committee members, such as training expenses, travel expenses and remuneration, if applicable. 11 11. For more information, see Instalment 3, How a Pension Committee Operates. Régie des rentes du Québec Supplemental Pension Plans 17
5. Document management policy Thorough document management allows the pension committee to demonstrate that it has acted in a prudent, diligent and competent manner in the best interests of members. By managing documents intelligently, the committee can provide the necessary followup, access the information it needs to make informed decisions, and show that members and beneficiaries received the benefits to which they are entitled. 5.1 Document retention 12 The pension committee must keep all documents concerning the pension plan and its administration. The internal by-laws should specify who is to keep the documents, where they are to be kept and what measures should be taken to ensure their validity. The documents can be kept on paper or electronically. They should be kept at the same location (i.e. the pension committee s office or the employer s establishment). After the pension plan has been in existence for a number of years, there can be a significant quantity of plan documents to retain. The committee should therefore establish rules with regard to archiving. Some documents may be kept by a service provider (e.g., the administrative services provider that keeps members files). The pension committee should therefore ensure that these documents are kept for as long as required and that the provider will give them to the committee or a new service provider, as applicable. These requirements should be indicated in the service contract. The committee must also ensure that it has access to the documents at all times. 12. For more information, see Instalment 3, How a Pension Committee Operates. 18 Régie des rentes du Québec Supplemental Pension Plans
5.2 Access to information by pension committee members Pension committee members are entitled to access information relevant to their duties. To that end, the committee secretary must provide each member, at committee meetings, with all the information they need to carry out their duties. Committee members are also entitled to consult and obtain copies of any relevant documents. However, this entitlement does not extend to the personal information of plan members, unless the duties of the pension committee members so require. In this respect, a pension committee demonstrates prudence by establishing written rules that govern access to and the distribution of information to its members. These rules should: designate a committee member to oversee access to information and the retention of pension plan documents. This member is generally the committee secretary. All document consultation requests should be addressed to that person, who will determine the validity of the request and grant it, as applicable. restrict access to the personal information of plan members to one or two committee members only. The committee could choose members that already have access to that information because of their roles with the employer, such as the director of human resources. For more information on the rules regarding the consultation of documents by plan members, see Instalment 5, Information for Members and Beneficiaries. 5.3 Protection of personal information The pension committee must take appropriate measures to ensure that no harm is caused to plan members on account of the personal information the pension plan has regarding them. This means that the pension committee must restrict access to certain information. For example, the pension committee must ensure that the service provider to whom it has entrusted plan administration grants access to personal information only to the member concerned and to other authorized persons. Régie des rentes du Québec Supplemental Pension Plans 19
Conclusion The pension committee must protect the benefits of members and beneficiaries while managing administrative and financial risks, and ensuring that the pension plan is administered in accordance with the plan text and legislation. Pension committee members must have access to the information they need to carry out their duties and thereby administer the pension plan well. This Instalment informs the pension committee on the various documents crucial to plan administration, whether they concern the pension plan, committee business, managing the pension fund or day-to-day plan administration. By having an in-depth understanding of these documents and knowing how to use them properly, the committee will be more able to effectively carry out its role. It is important for the committee to be familiar with the documents concerning the plan and its administration. It is equally important for the committee to take steps to retain those documents, ensure their completeness and protect the personal information they contain. 20 Régie des rentes du Québec Supplemental Pension Plans