The rapid advancement of technology and continuous changes in regulations have increased risks and threats for pension and benefits plans. As a result, the importance of strong governance cannot be overstated.
As the industry sets higher expectations for the level of involvement from those charged with governance (TCWG), it becomes imperative to ensure that these plans are managed with the utmost diligence and that appropriate documentation supports the involvement of TCWG. This is where enterprise risk management (ERM) plays a crucial role.
Elevating governance standards
While the ultimate fiduciary responsibilities of TCWG remain relatively unchanged, the complexity of the industry has evolved. As a result, additional levels of risk assessment and the establishment of corresponding processes and controls over key areas such as financial reporting, ensuring compliance with regulatory standards, and the need to manage the plan’s ability as a going concern are required.
While TCWG may call upon service providers to assist with the execution process, the requirement to validate the consistent application of processes and controls in the risk management process cannot be transferred. This results in a heightened level of involvement from TCWG for maintaining the trust and confidence of plan participants and stakeholders.
The role of ERM
ERM is a comprehensive approach to identifying, assessing, and managing risks that could impact the achievement of an organization's objectives. For employee benefits plans, ERM is vital in ensuring that potential risks are proactively managed and mitigated. This includes market volatility, demographic changes, and regulatory shifts.
By integrating ERM into the governance framework, boards can enhance their ability to make informed decisions that safeguard the long-term sustainability of employee benefits plans. This may also allow for clear alignment of processes and controls to safeguard against the identified risks.
Improving documentation and validation
One of the key aspects of strong governance is the ability to validate the decisions made by TCWG. Here are some suggestions to improve documentation and ensure robust validation:
Trustees’ responsibilities
The role of trustees in the governance of pension and benefits plans is more critical than ever. As the landscape of risks and regulatory requirements continues to evolve, trustees must take an active role in both governance and risk management. This proactive involvement is essential to ensure that the plans are managed with the highest standards of diligence and accountability. By integrating ERM into their governance framework, trustees can better identify, assess, and mitigate potential risks, thereby safeguarding the long-term sustainability of the plans.
Active participation in risk management not only enhances decision-making but also fosters transparency and trust among all stakeholders. It is through this dedicated and engaged approach that trustees can truly fulfill their fiduciary responsibilities and maintain the confidence of plan participants and stakeholders.