Pensions and Employee Benefits Law Blog 

In May 2023, the Canadian Association of Pension Supervisory Authorities (CAPSA) released a final draft of its Risk Management Guideline for pension plans. Following a consultation and review period, CAPSA released the final version of the Guideline on September 9, 2024.

We strongly recommend that all pension plan administrators carefully review the final version of the Guideline to determine its impact on the governance and administration of their pension plan. CAPSA made a number of changes, which, in our view, make the final version more clear and concise. We expect that for many, these changes will make the Guideline easier to interpret and apply. For instance, the final Guideline:

• condenses the five-step process into a four-step process;
• removes the concept of “risk capacity,” which largely overlapped with the concept of “risk limits” and was therefore unclear; and
• removes several lists of examples of potentially relevant considerations for plan administrators, which has the effect of making those sections less prescriptive and more principles-based.

A line-by-line comparison of the draft Guideline to the final Guideline is not as useful for pension plan administrators as a summary of the critical features of the final Guideline. While we strongly recommend that plan administrators familiarize themselves with the terms of the Guideline, the key features can be summarized as follows:

• Standard of Care: Of critical importance in the Guideline is the statement that maintaining an effective risk management framework is a way for a pension plan administrator to adhere to the fiduciary duty owed to pension plan members and to meet the standard of care imposed on them in that regard.
• Process for Administrators: The Guideline outlines the suggested approach to developing a risk management framework for a pension plan: identify relevant risks; evaluate and prioritize the risks in the specific circumstances of the plan (for example, considering likelihood of the risk materializing, impact of the risk materializing and ability to manage that risk); manage the risks by identifying what controls (if any) can be deployed (performance assessments, policies, training, disaster recovery plans, insurance); and monitor risks.
• Documenting the Framework: While the Guideline does not dictate how an administrator is to meet the standard of care in relation to risk management, the expectations from the Guideline suggest that having a written policy or framework is an obvious way to help meet the standard set by the Guideline. For example, the Guideline states that pension regulators may periodically review the risk management framework, which would be difficult to do in absence of a written framework.
• Proportionality: The Guideline provides that a plan administrator’s risk management approach should reflect its specific nature and circumstances including: plan type; complexity of administration and investment strategies; plan size; and size of plan assets. The Guideline expressly encourages plan administrators to “adapt their risk management practices to reflect” the plan’s investment beliefs, specific circumstances and risks.
• Address Specific Risks: While the Guideline provides a more principles-based approach for risk management more generally (see “Process for Administrators” above), the Guideline also provides specific commentary on managing risks relating to: third party risk; cyber security risk; investment risk governance; environmental, social and governance risk; and use of leverage. While the Guideline expressly suggests that a risk management framework should reflect a pension plan’s unique situation and circumstances, we strongly recommend that pension plan administrators consider each of these specific risks in the development of their framework.

The effective date of the final Risk Management Guideline is September 9, 2024. However, CAPSA has provided until January 1, 2026 to implement any IT system changes or process changes that may be needed to support the Guideline.

Certain provincial regulators have expressed whether they will expect pension plan administrators within their own jurisdictions to follow the CAPSA Guideline:

• OSFI expects administrators of federally regulated pension plans to follow the CAPSA Guideline as part of their efforts to meet their fiduciary duties in the administration of their pension plans and their pension funds or plan assets.
• BC FSA advised that it intends to adopt the CAPSA Guideline as its primary guidance related to the management of natural catastrophes and climate-related risks for pension plan administrators in BC.
• As of the date of this post, pension regulators in Ontario and Alberta have not yet published separate statements on the Guideline. Administrators are encouraged to monitor statements from their regulators in this regard.

If you have any questions about the CAPSA Risk Guideline and its application to your pension plan, please contact a member of our Pensions and Employee Benefits Group for more information.