Lesson 10 Flashcards
10.1.1 Describe the purpose of the SIP&P as outline by OSFI SIP&P Guideline (5)
1) Communicate the investment philosophy of the plan administrator to the pension fund managers
2) Describe objectives for the investment and lending programs and the overall risk philosophy for the pension plan
3) Document how investment managers will be chosen, compensated, and replaced in a manager that encourages compliance to the policy’s goals and procedures.
4) Communicate the investment strategy with those who evaluate the condition of the fund and to those who recommend contributions to the fund.
5) Identify the roles of those involved in the investment process and what is expected of them
10.1.2 Explain why quantitative constraint’s are included in a provincial pension plan investment policy statement as outlined in pension legislation
Quantitative constraints limit risk by setting minimum and maximum percentages that can be invested in any one asset category or particular security, thus ensuring reasonable diversification
10.1.3 Describe the quantitative constraints included in an investment policy statement as outlines in federal/provincial pension legislation, provide examples
Quantitative constraints include restrictions to certain asset categories and further restrictions within asset categories.
For example a sponsor of a pension plan may want to invest in common stock but only if the company has a certain amount of capitalization. Generally the smaller the company being considered for investment the more speculative the investment.
Certain bonds may also be viewed as speculative by bond rating services. There may also be social or political reasons not to invest in certain securities. They may want to avoid investing in their own securities or a competitors or a certain country due to political policies.
10.2.1 Describe the investment responsibilities of pension plan administrators under the PBSA and PBSR (6)
1) Administer the pension fund in accordance with the PBSA and PBSR
2) Act as trustees for plan stakeholders
3) Invest assets of a pension fund in accordance with PBSA and in a way that a reasonable and prudent person would apply to investment
4) Invest the plan assets in accordance with Schedule III of the PBSR which sets out prescribed investment and lending limits for a pension fund
5) Hold the assets in trust or with a custodian
6) Establish a written SIP&P that includes the prescribed elements
10.2.1 Outline information a pension plan administrator is required to include in a written SIP&P under PBSA and PBSR (8)
1) Categories of investments and loans including derivatives, options and futures
2) Diversification of investment portfolio
3) Asset mix and rate of return expectations
4) Liquidity of investments
5) Lending of cash or securities
6) Retention or delegation of voting rights acquired through plan investments
7) Method of, and basis for, valuation of investments that aren’t regularly traded at public exchanges
8) Related party transactions permitted and the criteria to be used to establish whether a transaction ins nominal to the plan or not
10.2.3 Explain who is responsible for a pension plan’s SIP&P and outline the approval process under PBSA and PBSR
PBSA and PBSR require that the plan administrator establish a written SIP&P based on the prudent person portfolio approach. The plan administrator is responsible for ensuring the SIP&P/related documents dealing with the investment process cover essential aspects of investment
Although the plan administrator is not required to have a SIP&P approved by the actuary or OSFI the plan administrator must submit the SIP&P to the actuary and the pension council(if one exists)
The SIP&P must be available to OSFI if requested. The guidelines also recommend that the plan administrator consider disclosure of he investment policy, manager mandates and performance information to plan members
10.2.4 In Quebec the responsibility for managing the plan fund is held by pension committee. Outline information included in the investment policy statement for a plan under Quebec’s Jurisdiction. (7 - roles outlined)
In Quebec the pension committee has the responsibility for managing the fund. The investment policy statement should clearly outline the role of:
1) Pension Committee
2) Management/board of Trustees
3) Investment managers
4) Custodian/trustee
5) Pension/actuarial consultant
6) Investment consultant
7) Employees, where they are involved in investment decisions
10.2.5 Describe the factors that sponsors of DB pension plans are required to consider and include in their investment policies under PBSA and PBSR
Most Canadian Jurisdictions require that sponsors of DB pension plans consider all factors that may affect the funding and solvency of the plan and the ability of the plan to meet its financial obligations.
The specific factors are to be described in the SIP&P and well as the relationship of those factors to the plan’s investment policies and procedures.
- 2.6 Describe the general requirements for review, filing and disclosure of SIP&P under federal and provincial pension standards legislation
- filing requirements
- disclosure requirements to members
Most jurisdictions require that the plan sponsor conduct an annual review of its SIP&P, NB only requires a triennial review. ON and NB require that SIP&Ps and any amendments be filed with pension regulators.
Most provinces require that for DB plans the SIP&P be provided to the actuary. It must also be available to OSFI on request
ON requires that certain SIP&P information be disclosed to members on their member statements. OSFI recommends that the plan administrator consider disclosure of the investment policy, investment manager and performance to members`
10.2.6 What information does the OSFI SIP&P Guideline suggest should be maintained on the plan’s investment portfolio in a manner that facilitates analysis.(4)
1) A comparison of current pension assets against the limits established in the investment policy
2) An analysis of asset quality and concentration
3) An analysis of interest rate and maturity mismatch, including the results of scenario testing as appropriate
4) An analysis of the diversification of income sources
10.3.1 Explain the intent and scope of the OSFI SIP&P guideline
the Guideline outlines factors OFSI expects plan administrators to consider in establishing, implementing and monitoring a SIP&P for a pension fund. It is meant to serve as a guide to assist plan administrators in developing investment policies and procedures suitable to their pension plan without limiting the care plan administrators take in their duties.
It it intended that it be adopted by each plan administrator to reflect the obligations of the plan, objectives of the fund and other factors that may affect the ongoing funding and solvency of the plan and the ability of the plan to meet its financial obligations.
10.3.2 Describe the procedures for pension fund investment activities as outlines in the OSFI SIP&P guideline (8)
1) Identification of responsibilities and accountabilities
2) Processes for recommending, approving and implementing decisions
3) Identification of the frequency and format of reporting and of performance measures
4) Description of how investment and lending policies are to be implemented and monitored.
5) Description of how loans and investments are classified
6) Description of the custodial arrangements for plan loans and assets
7) Monitoring and controlling of the plan’s exposure to changes in interest rates, foreign exchange rates and market prices
8) Identification of potential conflicts of interest and how they may arise and be addressed
10.3.3 Describe the factors a plan administrator is expected to consider when preparing a SIP&P as outline in the OSFI SIP&Ps Guidelines (9)
1) Current Investments in place
2) Rate of future contributions
3) Amount and structure of current and accruing liabilities
4) How liabilities and the various investments being contemplated would respond to plausible economic events
5) Financial situation of the plan
6) Tolerance for Risk
7) Maturity of Pension Plan
8) Estimated cash flow requirements
9) Financial risks the plan sponsor may face regarding funding the pension plan
10.3.4 Identify factors outlined in the OSFI SIP&P guideline that an administrator of a plan with DB provisions should address to understand plan obligations when developing a SIP&P
1) Whether pensions in payment are increased to keep pace with the cost of living
2) Whether the pension formula adjusts to increases in salaries over time
3) How obligations are distributes among the categories of members and former members
4) Whether changes in employment levels or conditions are likely to change patterns or retirement
5) Whether ancillary benefits are contingent on full or partial termination
6) Whether any plans changes are anticipated
10.3.5 Identify member profile factors outlined in the OSFI SIP&P Guideline that an administrator of a plan with DC provisions should address to discharge its investment obligations when developing a SIP&P (11)
1) Needs and reasonable expectations of members
2) Mix of members, growth for young holding for old
3) Members’ risk tolerance
4) Variations of risk tolerance and expectations among members the same age
5) Ability of members to choose investment options
6) Asset classes and investment styles offered
7) Investment manager selection, determination of performance standards, monitoring and response
8) Education of members and beneficiaries about plan provisions, retirement planning and investment methods
9) Communication of information about options, performance, and fees to members
10) Monitoring default options for participants who have not made selections
11) Monitoring participation rate and selected options
