Retirement fund governance is not only a matter of drawing up rules and establishing structures, Michael-John Albert, a partner at Deloitte, says. Of crucial importance, he says, is the values and actions of your fund's trustees. Albert was speaking at the recent Personal Finance/Old Mutual Actuaries & Consultants seminar on retirement fund governance.
Good governance goes beyond your retirement fund putting the right procedures and policies in place. Of equal importance is the behaviour and attitudes of the people who govern your fund, Michael-John Albert says.
Governance structures refer to the practices and procedures employed by a retirement fund's trustees - for example, the requirement that trustees attend meetings and that their decisions are documented.
The behavioural element refers to the ethics, values, culture and integrity of the people who are responsible for governing the fund, Albert says. It includes, for example, the trustees' attitudes and how they tackle issues facing the fund.
For instance, does each trustee make decisions independently or does he or she simply follow another trustee's lead? And are your trustees brave enough to acknowledge that they may not fully understand all the matters that require their attention?
Albert suggests that your retirement fund's board of trustees take the following steps to ensure it governs your fund properly:
Values and a code of conduct
Values form the basis of the trustees' interactions among themselves and with the fund's stakeholders, service providers and advisers, Albert says.
Each fund should develop a set of values, which should be communicated to the fund's stakeholders. He says the fund should also adopt a code, based on the fund's values, to govern the conduct of trustees.
The code should ensure that the trustees are well-positioned to discharge their legal duties and to:
- Act in good faith in the best interests of the members;
- Treat members impartially;
- Exercise care, skill and diligence;
- Prevent personal interests conflicting with those of the fund; and
- Interpret the fund rules fairly, impartially and in good faith.
Independence
Independence extends beyond the trustees and includes all service providers to the fund, Albert says.
Trustees must be transparent in all their dealings with the fund, its members and service providers. Independence can only be achieved through full disclosure, he says.
Trustees should sign annual independence declarations and these declarations should be communicated to the fund members. Trustees should make a full disclosure of:
- Existing or potential conflicts of interest;
- Remuneration, including expenses for which they are reimbursed;
- Any direct or indirect interest they may have in contracts that the fund enters into;
- Details of any payments received as a direct or indirect consequence of their position as trustees; and
- A declaration that all gifts received have been entered into a register of gifts.
All the fund's service providers should make annual declarations of independence to the board as part of their service agreements.
Training
Trustees need to be equipped with certain skills and tools if they are to perform their tasks and discharge their fiduciary duties, Albert says.
A fund should ensure that its trustees receive formal and informal training to keep them up to date with the legal and financial developments that may affect their fund, he says.
Trustees also have a personal responsibility to keep in touch with developments in the industry.
Evaluation of performance
The performance of the board of trustees and of each individual trustee should be evaluated, Albert says. Evaluations should cover two main areas: those relating to improving or filling in gaps in trustees' knowledge; and non-compliance with basic requirements, such as attending meetings, actively contributing to meetings, being prepared for meetings and acting ethically.
He says instances of non-compliance should be disclosed to the members, together with the remedial action being taken by the board.
Delegation of duties
Albert says a board of trustees may outsource its functions or delegate some of its duties to consultants or sub-committees. However, this does not absolve the board of its ultimate responsibility for these consultants and sub-committees' actions.
Trustees should establish an authority framework for the fund, he says. The framework should set out:
- What decisions must be taken by the board and what decisions can be taken by individual trustees;
- Who can bind the fund to agreements, and to what extent; and
- How compliance with the framework must be monitored.