Rules for choosing service providers

The internal by-laws must include rules for choosing, remunerating, monitoring and evaluating service providers. Choosing competent service providers constitutes one of the most important decisions the plan administration has to make. The service providers advise the administrator or carry out the functions with which they have been entrusted. Bad choices can result in errors and, in some circumstances, the administrator may even have to pay damages.

The administrator is responsible for the actions of its service providers, which is why it is so important to make sure that the people chosen are competent, to give them clear instructions and to ensure their work is adequately monitored. However, the administrator is not responsible for the actions taken by a person to whom it has delegated powers, nor those of a person exercising discretionary powers, if it has chosen a competent person, given the person clear instructions and adequately monitored his or her work.

The internal by-laws must include the main rules for choosing competent service providers. the rules must allow the administrator to demonstrate that it has taken reasonable measures to select a service provider who is capable of providing the required services.

The internal by-laws could, for example, provide that the administrator may solicit bids from service providers by invitation. Normally, they must include the following steps:

  • describing the services required by the administrator
  • determining objective selection criteria (qualifications, sector of activity, proximity, etc.)
  • drawing up a list of potential candidates
  • providing the candidates with instructions using, for example, a book of specifications
  • analyzing the bids received using, for example, an evaluation scale
  • inviting candidates who have been short-listed for an interview to choose amongst them.

The steps in the selection process may vary according to the type of service provider.

The administrator and the service provider should sign a contract that sets out each party's obligations, including reporting rules (frequency of meetings and reports, etc.), the fees charged and rules for billing, and the conditions for changing or cancelling the contract.

Note that...

The administrator should regularly evaluate its service providers, even in the absence of problems.

The main service providers

The administrator must obtain the services of professionals to carry out certain financial and administrative duties.

With few exceptions, an audit accountant must audit the pension fund's financial report and provide the administrator with an audit report and a report on supplementary matters arising from an audit.

In a defined benefit plan, an actuary must prepare the actuarial valuations required under the Supplemental Pension Plans Act and the Income Tax Act.

The administrator will usually retain the services of the following people:

  • a securities depositary (securities custodian)
  • a portfolio manager
  • an administrative services provider (e.g., the employer's human resources service, a financial institution, an actuarial firm).

Some administrators also retain the services of a financial expert, a legal advisor or a communications consultant.

For more information about other subjects that the internal by-laws must cover, refer to:

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