Pension risk, game design

NBPSPP and risk management

In my last pot, I covered risk management and the NBPSPP. It was covered from a general governance perspective. CCGG, CAPSA and CICA all have similar observations.

CCGG (Canadian Coalition of Good Governance) makes a number of recommendations. 

1. The (Pension ) Board should oversee the Enterprise Risk Management process.
2. This ought to be done through a Risk Management steering committee. Note that there is some debate about whether or not there should be such a committee. The alternative is to embed the risk management function into the function of each board committee. The challenge for the NBPSPP is that it has only 2 committees. 
3. There should be (published) risk indicators.
4. The Audit Committee should ensure that risk is clearly defined and that the risk parameters are understood an respected by management.
5. That is, the Audit Committee assures that the risk oversight is delegated appropriately to appropriate committee of the board.
6. The board reviews , annually, performance.
7. The Board needs to review, quarterly, key business risks including: cybersecurity, data loss, changes in the legislative or regulatory environment, the impact of service disruption. 

In another post, the way a Plan needs to engage with and reach out to key stakeholders on these and other matters will be reviewed.

More detailed guidelines are provided by both CAPSA and CICA.

CAPSA  www.capsa-acor.org has taken a look at how some principle risks might be addressed through Principle 7. These parameters include:

• investment time horizons
• liquidity needs
• funding risk
• return volatility
• demographic risk
• longevity risk
• legislative/regulatory requirements risk

To get the more details about the CAPSA approach to Pension Plan Governance and risk management go to Guideline 4

www.capsa-acor.org/Documents/view/52

Pay especial attention to the self assessment questionnaire. A question to our Pension Board " How does our plan measure up?"

Guideline 6 covers the Prudent Person requirement for Board risk management.
www.capsa-acor.org/Documents/view/59

CICA (20 Questions a Pension Board should ask) provides an excellent overview of the responsibility of the Pension Board in risk management. Most importantly, at issue is the oversight of risks of certain investments. It is important that these risks be professionally evaluated. The role of the Board is to manage risks, not returns. 

As a part of the directors' ongoing risk assessment and management, the board should require an annual report from management on pension administration and compliance. Topics to be covered include:

• membership stats, changes to that demographic and impact on funding;
• liabilities both in terms of  going concern and solvency
• management compliance with SIP&P. i.e. do transactions and investment holdings meet the terms of investment management agreements?;
• changes to the management structure;
• compliance with asset and liability mix policy;
• compliance with pension funding guidelines;
• currency guidelines so that the plan is managing its foreign currency risk exposure;
• have managers voted proxies as instructed;
•  compliance with restrictions and related party transactions;
• conflict of interest reporting;
• fraud prevention and detection compliance.

The next posts will involvement retiree and ,more broadly, stakeholder engagement.