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Monitoring Investment Managers and Investment Fund Performance in Ontario Pension Plans: How Do You Stack Up?

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If you’re an employer or administrator of an Ontario-registered pension plan, you’ll be interested to know that the Financial Services Commission of Ontario recently published a detailed report on the filings of Statement of Investment Policies and Procedures (SIPPs) in Ontario (the “Report”). The Report which was published at the end of July, 2017 can be accessed here.

One particular finding in the Report that employers and administrators will likely want to know is how often, really, are plan administrators monitoring investment managers and investment fund performance.

Monitoring the investments in a pension plan is part of good governance. In fact, Guideline No. 4 of the Canadian Association of Pension Supervisory Authorities (CAPSA), which was revised last December, specifically provides for performance monitoring standards as its fourth principle.

Prudent plan administration requires the plan administrator, who is often times the employer, to establish criteria for the periodic review of investment managers and investment options, and, more importantly, to follow through with that monitoring.  For defined contribution (DC) pension plans where members are responsible for directing investments, CAPSA Guideline No. 3 recommends that investment options be reviewed at least annually.

So what are employers and plan administrators actually doing (or at least promising in their SIPPs to do)?

The Report includes the following findings:

  • The majority of defined benefit (DB) plan administrators, 65.2% to be exact, have set  out in their SIPP that they will monitor the performance of investment managers at least once a year.  In addition, approximately 25% of DB plan administrators have committed to quarterly or more frequent monitoring.
  • In member-directed DC plans, the frequency of monitoring investment fund performance was generally comparable to that of DB plans.  Most plans, 63.3%, require investment options to be reviewed by the plan administrator at least annually.  However, only about 10% of these types of plans require monitoring at quarterly or more frequent intervals.

Takeaways:

If you’re an employer or plan administrator of an Ontario-registered pension plan and you’re monitoring the investments in your plan at least once a year, you’re among the majority. Whether it’s prudent and advisable to monitor your plan’s investment managers and/or investment options more frequently will depend on the specifics and details of the plan itself.

It’s not so much the frequency of monitoring that’s set out in your SIPP that’s important, but actually following through on your stated monitoring schedule that’s crucial. If you haven’t reviewed your investment managers and investment options recently, now is a good time to do so.

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