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In the governance of the ABC pension plan, this paper focuses on the duties and authority that are assigned in a hierarchy. So that the governance goal could be successfully attained, the expansion of the fund resulted in the development of a systematic documentation process. The acceptance of all parties and stakeholders concerned is a requirement for the implementation of the proposed governance structure for this purpose.
The pension plan is operated and managed by the board of directors, which has the highest and final authority. Only with the board's consent could any significant choices that were meant to have a initiated after an approval by the board of directors. The pension plan currently holds assets worth $25 million. All the decisions which may impact the firm greater than 17% of its total value or greater than 4.25 million could only be taken after an approval by the board. The board of directors has divided the objectives of the pension plan in three categories, Pension Management, Financing/Investment and Auditing & Compliance. To achieve these objectives, two sub committees would be created (Gold, 2005). The sub-committees are authorized to delegate its tasks to the following third parties.
The Pension committee
The pension committee is responsible for the following tasks.
Recommendations with respect to design plan along with administration of the plan.
Maintenance of the documents and regulatory compliance.
Communicating with the members.
The pension committee could delegate its tasks to any third party firm for the tasks which majority of the committee recommends and is approved by the Board of directors. At present the fund is administrated by Pensions R Us, an actuarial consulting firm. The pension committee would also be responsible to oversight the performance of the third party firm, and periodically evaluate the performance (Munnell, 2006). If any lack is observed in performance as compared to other reputed firms of the state, the pension committee is responsible to recommend alternative name for third party administration.
The Finance committee
The Finance committee is responsible for the following tasks.
Selection and evaluation of the investment managers.
Evaluation of the plan investments.
The Finance committee could delegate its tasks to any third party firm for the tasks which majority of the committee recommends and is approved by the Board of directors. At present the investment manager is Returns & Co. The finance committee would also be responsible to oversight the performance of the third party firm, and periodically evaluate the performance. If any lack is observed in performance as compared to other reputed firms of the state, the pension committee is responsible to recommend alternative name for third party investment manager. Furthermore the finance committee could also hire multiple investment managers. .
• Approve action= Board of Directors
• Recommend action= Committee
• Report on action= Third party firm, Committee
• Perform task= Third party firm.
The above system of governance process has been designed on the basis of a number important factors and reasons. At first, the proposed governance structure is inspired from an already existing and successful governance structure, which is called the corporate governance. For more than a century, the corporate governance has gone through various evolutions and development phases. The current corporate governance system is the outcome of the experiences of more than a century. Hundreds of companies have successfully grown adopting the corporate governance structure. Due to its past success, the governance structure of pension plan has also been designed after inspiration from the corporate governance.
At the top of the hierarchy comes the board of directors. The board of directors of the pension fund comprises of the most important stakeholders that are responsible for the creation and termination of the board. These are the members who have a direct interest in the objectives of the plan and therefore are eligible to decide the long-term direction of the pension plan and important decision making. Two committees are suggested because the main task of the pension plan could broadly be categorized in two major categories. Although one committee could also have been found to manage all the tasks, it was found suitable to divide the tasks and assign them to each committee which is solely responsible for its particular task.
The possible objections could arrive from the third parties. Previously no related clause existed that may allow any committee to evaluate the performance of the third party firm, and if any lack is observed in performance as compared to other reputed firms of the state, may suggest alternative names. This clause might not be pleasant for the third party firms currently providing their services. They may argue that such a step may impact their integrity and long term association with the pension plan. However it is important to suggest that every association with the plan should be based on performance. This is also in compliance with the objectives of the pension plan and important for its growth and long term survival.
Gold, J. (2005). Accounting/actuarial bias enables equity investment by defined benefit pension plans. North American Actuarial Journal, 9(3), 1-21.
Munnell, A. H. (2006). Employer-sponsored plans: The shift from defined benefit to defined. The Oxford Handbook of Pensions and Retirement Income, 359.
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