2006 General Meeting Assemblée générale 2006 Chicago, Illinois 2006 General Meeting Assemblée générale 2006 Chicago, Illinois Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 New Developments In The Governance Of Employer- Sponsored Pension Plans: Are We Prepared? Co-presenters: Gordon M. Hall & Elizabeth M. Brown

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Governance is about… decision making…..and oversight of the functions performed by agents… all with the objective of improving performance…broadly defined

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Purpose of the Paper Pension governance reform and developments Best-in-class practices Significance of increased board oversight for consulting professionals Stimulate dialogue in the actuarial profession Role of the actuary Pension governance enhancements Wholesome service to the public

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Perspective Through eyes of Oversight Board Looks across Canada’s private pension system Considers all stakeholders Understands that much of pension governance reform – not tied to statutory requirements – derived from fiduciary principles, best practices & jurisprudence

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Perspective Leadership of pension governance reform initiatives is key No one-size-fits-all governance solutions Whether D.B. or D.C. is important but only a small part of pension governance reform Pension governance reform…working within Canada’s private pension system….can succeed

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 New Developments 1.Corporate governance reform for the sponsoring employer – audit committee reform – internal control over financial reporting – focus on enterprise risk management – Board-approved MD&A-type annual reports

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 New Developments 2.Credit and equity analysts – pension-related risks in models – Oversight Boards interested in external markets view

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 New Developments 3.Within employer-sponsored pension arrangements – demographics – increased litigious activity – legislative & regulatory developments – competency & experience deficiencies of Oversight Board members – trustees/directors/officers…legal exposures…qualifications…ability to resign

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 New Developments 3.Within employer-sponsored pension arrangements (cont’d) – quality of “pension governance safety nets”…indemnification in sponsors’ By- Laws…D&O and fiduciary liability insurance – FASB & net unfunded status of pension arrangements on sponsors’ balance sheets – increased pressure to improve investment risk/return relationship – relatively new investment vehicles …complexities…additional costs…

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Leadership CEO’s & Oversight Boards of sponsors & legal administrators the professions…the consulting professionals…the firms that employ them

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Best Practices For Oversight Boards: Cases Two Best- In-Class Cases –The Ontario Teachers’ Pension Plan –The Plan For Ordained Ministers and Staff of the United Church of Canada

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Best Practices For Oversight Boards: Recommendations 1.Framework –terms of reference –requisite skills & experience –beliefs & guiding principles –code of conduct…confidentiality … conflicts of interest…collegiality…safe disclosure… –orientation/awareness for new Oversight Board members –continuing education initiatives for Board members…self-teaching & formal knowledge accumulation…subject matter… –self-evaluation

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Best Practices For Oversight Boards: Recommendations 2.Orientation & Processes –ask tough questions…coach, mentor,work as a team –stick to guiding principles…promulgating guiding principles & policies…follow-on monitoring and evaluation –be diligent in confirming qualifications, capabilities & performance of external advisors & suppliers –create a sense of partnership & community …all suppliers…for the good of the plan

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Best Practices For Oversight Boards: Recommendations 2.Orientation & Processes (cont’d) –confirm “pension deal” is relevant…capable of being fulfilled…interests of sponsor & members are aligned –stay on top of litigation & legislative developments…for the plan…and for trustees/ officers/directors –stay current with…pension standards regulators…government policy makers –minimum standards…being met…should be exceeded?

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Best Practices For Oversight Boards: Recommendations 2.Orientation & Processes (cont’d) –insist on appropriate documentation of the Oversight Board’s activities…agendas, work plans, minutes… –insist that agents peer review all materials –insist on consistent quality…between governance of core business & plan…with respect to …control environment…and Board- approved reporting –network with other Oversight Boards about pension governance –evolve…it is all about continuous improvement in the quality of governance

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Significance CEO’s of sponsors…set “tone-at-the- top”…related to pension governance reform Oversight Boards…make “business conduct” expectations…related to pension governance reform…known –understanding –collection of requisite skills & experience –guiding principles protocols & practices –all forms of conflicts of interest

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Significance the Professions –integration of specialty advice…critical to effectiveness of outcome for plans –inter-face of thought leadership between professions…should/will increase considerably the Actuarial Profession –governance of the profession being strengthened –CIA responding to the professional leadership needs of its membership

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Significance the Actuarial Profession (cont’d) –May 2005 Report…”actuarial standards may lag…” most appropriate investments? optimal structure? consensus building on a timely basis? curriculum current? service to public…more wholesome?

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Significance the Actuarial Consulting Professionals –those not close to retirement…as an actuarial practitioner… advice is custom-fit & suitably broadly-based integrating this advice with that of other specialists stating positions that Oversight Boards need to hear –those closer to retirement…with an inclination to self-learning & to Oversight Board service seek formal corporate governance education join audit & governance committees…NFP sector

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Conclusions CEO’s…set “tone-at-the-top” Oversight Boards…make “business expectations” related to pension governance known Consulting Professionals & Executives at Sponsors –advisors working more closely together –sense of partnership & community…for the good of a specific plan

2006 General Meeting Assemblée générale General Meeting Assemblée générale 2006 Questions & Comments