Common Wealth Founding Partner Alex Mazer's presentation on pension governance. Part of the Association of Canadian Pension Management's Atlantic Regional Council event in Moncton, New Brunswick, May 4, 2016.

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Governance as a tool for improving
pension performance
A multi-stakeholder perspective
Alex Mazer
Founding Partner
Common Wealth

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Importance of governance from a
“systems” perspective
also about
performance
Not just about
compliance
The best retirement security for
every dollar of contribution

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Good governance helps distinguish pensions
from financial products
Financial products Pensions
• Profit-driven
• Investors’ interests
not necessarily first
• Individualized
• Governance often
ineffective and/or
conflicted (e.g.,
mutual fund
complexes)
• Members’ interests
must be first
(fiduciary duty)
• Collective
• Trust structure
• Statutory member
protections through
pensions standards
legislation

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Peter Drucker’s five principles for high-
performance pension organizations
Mission clarity and
organizational autonomy
Good governance
Sensible investment beliefs
Right scale
Right people
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3
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Common Wealth’s ten principles of good pension design
1. A singular focus on delivering cost-effective retirement security for members
2. Lifetime approach, with accumulation integrated seamlessly with decumulation
3. Members’ interests first (strong fiduciary duty)
4. Low-cost
5. Simplicity through limited investment choice
6. Passive investment management is almost always better than active management, except for the
most sophisticated institutions
7. Investment philosophy and asset allocation informed by best international examples and thinking
8. Transparency and benchmarking
9. Governance similar to best public pension plans
10. Plan design optimizes other government benefits and tax efficiency for members

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Government and regulator perspective on pension
governance
• Good governance as an efficient mode of regulation
• An increasing focus of policy makers and regulators
• Ways policy makers and regulators can encourage good governance:
o Encouraging plan designs and structures that involve member
participation and shared decision making (e.g., JSPPs)
o Encouraging scale, which can attract better trustees
o Greater transparency, benchmarking
o “Fiduciary duty” – evolving meaning; expanding scope of application
o Requiring/encouraging training and education for trustees
o Leading by example: better governance in plans that governments
sponsor

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Unions ideal sponsors but don’t always succeed
In theory, ideal sponsors
for pension plans
In practice, record of union
sponsorship ranges
Scale
Mandate
Longevity
vs

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A critical opportunity for the labour movement
Challenges for labour
§ Declining
membership
§ Legal/political
threats
§ Limits of bargaining
as a tool
The retirement security
opportunity
Provide pension
vehicles to those who
lack access
Increase membership
and relevance, while
contributing social /
economic value

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The lack of good governance can undermine retirement
security for members
$
Potential nest egg
Actual nest egg /
potential
retirement
income
Actual
retirement
income
Accumulation phase Decumulation phase
$
§ High fees (30%+ of savings)
§ Poor choices (timing, fund
selection, asset allocation)
§ Failure to save
§ “Bay Street first” approach
§ High fees (-3 years of retirement
income)
§ Little annuitization / longevity risk
management
§ Potential exploitation of vulnerable
consumers
Capital accumulation plan example

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Concrete ways trustees can add value for
members / sponsors
• Lower fees
• Expand membership
• Transparency and benchmarking
• Collaboration with other plans
• Regular communication and information sharing with sponsor
• Clear, digitally accessible information / communication
• Seek member input where it will be meaningful

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Opportunities for Atlantic Canada
• Encourage scale:
o Asset pooling
o Expanding of existing plans / funds
o Mergers / consolidation
• Move towards arm’s-length governance and in-house
management for public sector plans (some of which is already
underway)
• New union-and association-sponsored CAP plans with good
governance – flexible models to meet needs of contract / self-
employed / seasonal workforce
• Regulatory / policy collaboration amongst Atlantic Canadian
provinces and with the rest of Canada (e.g., on CPP / ORPP)
Building on work and reform already underway

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Pooled asset management in the rest of Canada
Model for achieving scale economies and in-house management
Investment Management
Corporation of Ontario
$226B$84B$124B $112B ~$50B

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Recap of key points
• More than compliance; performance
• Governance helps distinguish pensions from financial products
• Good governance is increasingly important to governments/regulators
• Critical opportunity for labour as sponsor/overseer
• Trustees can play a leadership role in improving performance and adding
value for members
• Opportunity to improve outcomes in Atlantic Canada through:
o Scale
o Arm’s-length governance / in-house management
o New union-and association-sponsored CAP plans with good governance
o Regulatory / policy collaboration and reform

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Common Wealth is a specialized
advisory firm dedicated to
strengthening retirement security
and expanding access to good
pensions. We serve pension plans,
unions, governments, and
associations in developing
integrated, innovative solutions to
the investment, management,
regulatory, and stakeholder
challenges associated with
pension security.
About us
Design, build, and
support innovative new
pension vehicles and
products
What we do
Pension strategy,
regulatory affairs, and
capacity building
Pension plan growth,
consolidation, and asset
pooling
Contact
Alex Mazer
Founding Partner
amazer@common-wealth.ca
www.common-wealth.ca
@CWpensions
About Common Wealth