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Plan Sponsors’ Role I Board’s Role I Oversight I Effectiveness I Accountability |
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The pension plan’s governance structure ensures that the board members properly supervise management’s actions and decisions. |
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The Ontario Teachers’ Pension Plan Board is an independent corporation (without share capital) established on December 31, 1989 by the Teachers’ Pension Act (Ontario). This Ontario statute requires the corporation to administer the pension plan, manage the pension fund, and pay members and their survivors the benefits promised. The Teachers’ Pension Act states: “The Board shall administer the pension plan and manage the pension fund in accordance with this Act, the Pension Benefits Act (Ontario), and the Income Tax Act (Canada).”
The Pension Benefits Act (Ontario) defines fiduciary duties for all pension plan administrators in Ontario. A central duty of the corporation is the obligation to administer the plan and invest assets with the same prudence expected of a person dealing with another’s property.
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Plan sponsors’ role
The pension plan is sponsored by the OTF, representing teachers, and the Ontario government, which matches teachers’ contributions. Under the Teachers’ Pension Act (Ontario), the plan sponsors are jointly responsible for ensuring the plan remains fully funded over the long term and for setting plan benefits and contribution levels. In addition to making plan funding decisions, the plan sponsors also appoint the pension plan’s board members.
The Teachers’ Pension Act (Ontario) provides for the joint management of the pension plan by the Ontario government, through the Minister of Education, and the executive of the Ontario Teachers’ Federation ("the partners").
Signed by the plan sponsors as partners, an agreement signed by the partners effective January 1, 1992 sets out the terms of joint management. The partners are jointly responsible for plan losses and gains. A six-member partners’ committee is responsible for changes in plan design and benefit levels. The agreement deals with appointments of board members and delineates the board’s powers and duties other than those set out in legislation. The members of the partners’ committee are not members of the board. The partners have also appointed the board as trustee of the Retirement Compensation Arrangement (RCA).
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Board’s role and independence
Teachers’ management team is overseen by nine board members appointed equally by the plan sponsors, the OTF and the Ontario government.
The board is required to act independently of both the plan sponsors and the plan’s management, and to make decisions in the best interests of all beneficiaries of the plan. The structure of the board, and the process for appointing its members, ensures that board members are able to operate independently of management. For example, the roles of the chair and the CEO are separated and no member of management is a member of the board, the Audit and Actuarial Committee, or any of the board’s other committees.
To ensure access to external sources of important information, the board members meet from time to time with outside advisers on general topics, as well as with external investment managers and experts in compensation management. Board committees, as well as individual board members with the approval of the chair, can engage outside advisers at the organization’s expense in appropriate circumstances.
The Audit and Actuarial Committee consults directly with the internal and external auditors and the independent actuary. Guidelines have been established to control the hiring of current and former partners and employees of the external auditors and for the approval of the external auditor’s non-audit engagements and fees.
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Overseeing management’s performance
The board members delegate ongoing plan administration and investment management to the Chief Executive Officer and his staff. A job description for the CEO, as the board’s delegatee, complements the delegation of these primary tasks. The staff manages two core businesses – member services and pension fund management – each supported by general corporate services. This plan is one of few Canadian pension organizations that provides pension services directly to its members rather than through their employers.
The board requires the plan’s management to establish annual corporate objectives and a financial plan for fund investment and member services, as well as longer-term business strategies, and reviews management’s progress against these and other objectives. To ensure the interests of management and plan beneficiaries are closely aligned, senior staff receive annual and long-term bonuses based on the achievement of pre-set performance targets approved by the board members.
The board members annually review the investment strategy, which is expressed in the Statement of Investment Policies and Procedures. This document sets out, for example, the long-term asset-mix policy.
The board members also regularly review the strategies for assets and surplus management. Investment managers are rewarded for achieving annual and four-year performance targets. For the Member Services division, managers are required to meet annual and three-year performance targets for improvements in the quality of services (measured by regular surveys of member opinions), and the effectiveness of managing operating costs.
Every year, the board members receive an actuarial valuation of the plan’s financial viability and audited financial statements. The board members also annually review the investment and non-investment risks faced by the organization, and the adequacy of procedures to deal with those risks. In addition, the performance of the investment portfolio and the plan’s financial position are reviewed every quarter.
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State of Investment Policies and Procedures (132 KB pdf) |
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Effectiveness of the board
An orientation program is in place for new board members to assist them in executing their governance duties. Board members attend special seminars on specific technical issues, such as the actuarial valuation of liabilities and the use of derivative contracts. Education is provided by outside experts as well as by staff specialists.
The fact that each board member is appointed for a term of two years, and can serve only four consecutive terms, ensures that the plan sponsors consider the qualifications and effectiveness of individual board members on a continuing basis.
Each year the Governance Committee reviews the size and composition of each board committee and each committee reviews its terms of reference every two years. The terms of reference of each committee includes a position description for the chair of the committee. There is also a position description for the board chair.
Every second year the Governance Committee conducts a self-evaluation survey on the effectiveness of the board and its committees. Each board member completes a written questionnaire comprised of questions and opportunities for comments and suggestions focused on the board members as a group, including the competencies and skills they should possess.
To guide the board members in the orderly discharge of their responsibilities, there is an annual calendar which shows the items to be put on the meeting agendas of the board and each of its committees during the year. The board members and the Investment Committee hold 10 scheduled meetings and several special meetings each year. The board members meet without management present for a part of each regularly scheduled board meeting. The Audit and Actuarial Committee meets six times a year, the Human Resources and Compensation Committee three times, and the Governance Committee twice. The Benefits Adjudication Committee hears appeals by members as necessary. |
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More information about board committees. |
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Accountability and communications
The board has made accountability to the plan sponsors and disclosure of activities to plan members the cornerstone of its communication policy. This policy acknowledges that plan members and beneficiaries have a right to know how their contributions are spent and invested.
Teachers’ reports to the plan sponsors on a regular basis and issues an annual report including audited consolidated financial statements and an actuarial opinion. Information is also provided to plan members and beneficiaries through newsletters, annual statements, websites, focus groups, surveys, presentations, meetings, telephone discussions and correspondence. Members who are dissatisfied with staff decisions concerning plan entitlements have recourse through the benefits adjudication appeal process.
The board members have adopted written standards of responsible business conduct required of staff and themselves in a Code of Business Conduct. Board members and employees regularly sign off on the applicable code.
The Code of Business Conduct obligates employees to report serious errors, wrong-doing, breaches of the Code, and questionable accounting or auditing. Procedures have been established for employees to make such reports directly to management or anonymously through a web-based service provided by an independent supplier.
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