What does all of this growth betoken with regard to efficacy in the Canadian financial system? As Figure 3 reveals, employer-sponsored pension funds have certainly come of age as financial institutions, at least in terms of overall supply. In fact, they are this country's second largest pool of capital resources, after the banks. Increasing relative size and ubiquity in capital markets is a distinction Canadian pension funds share with their opposites in the industrialized economies of the United States, the United Kingdom, other European countries and Japan.
Incremental growth in the asset base of employer-sponsored pension funds shows no signs of halting or even slowing down. Of course, its extent and pace depend on the vicissitudes of Canadian and international economies and capital markets in the years ahead. Another key variable remains the going-to-market of still more plans in the public sector in future (along with the reconstituted Canada Pension Plan, expected to itself reach $125 billion within a decade). As a consequence, pension funds can reasonably be anticipated to expand beyond the $600 billion mark before, or not long after, the year 2000 with some restructuring-driven growth still to come.
Issues pertaining to the governance of multi-stakeholder pension funds have come to fore in recent years. In their 1998 book Pension Fund Excellence: Creating Value for Stakeholders, Keith Ambachtsheer and Don Ezra hint at the reasons why, among other things, few funds have adopted current mission statements or clear enunciations of long-term goals and organizational strategies. Lack of direction and transparency at this level, say the authors, may well be the tip of the iceberg in some cases.Endnote 15
Recently, PIAC sought to correct this situation by crafting guidelines for model governance principles and practices (Effective Pension Plan Governance, 1997). Guidelines address such key areas as the selection and function of governing fiduciaries (i.e., trustees), power-sharing between trustees and managers, and procedures/techniques for investment performance monitoring, review, reportage and evaluation.
Irrespective of their multi-various institutional designs, legal status ensures some commonality in the Canadian pension plan universe. Plans registered under federal or provincial regulatory regimes and Revenue Canada must comply with pension standards legislation in a given jurisdiction as well as the federal Income Tax Act. These requirements are matched by incentives - registered arrangements automatically entitle employees to tax-free plan contributions, while the registered plan's investment earnings are also permitted to accrue without taxation.
As the chosen funding mechanism of most pension funds, the trust agreement gives clarity to that most critical of phrases: "fiduciary responsibility." The trust frames the exercise of this obligation in a relationship between individual fiduciaries/trustees (at least three, one of whom must be at arm's length from the sponsoring employer), or a trust company, holding title to pension assets, and plan members (i.e., participating employees and retirees). In other words, fiduciaries owe loyalty to plan participants and beneficiaries and are legally answerable to them for all aspects of long-term pension administration, benefits funding, investment and management of assets.
Categories of fiduciaries and their respective duties can be further delineated. At the top, there are governing fiduciaries that, according to legislation in a given Canadian jurisdiction, act as the official plan administrator. In general, these tend to be the sponsoring employers or specific pension boards and committees of diverse compositions.
In the case of single employer pension plans in the private sector, it is usual for corporate boards of directors to delegate administrative decision-making to a sub-committee. In the case of multi-employer plans, this role is instead filled by a joint trusteeship process of equal numbers of employer and employee representatives (or, in some instances, the latter alone) that frequently emerges from collective bargaining agreements. Plans in government and the public and para-public sectors may observe some version of these two approaches.