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Payment of Plan Administration Expenses from the Salaried Pension Plan Funds, Policy on the (HTML)

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Policy Governance Details

  • Policy Title: Policy on the Payment of Plan Administration Expenses from the Salaried Pension Plan Funds
  • Approved by: Board of Governors
  • Date of Most Recent Approval: April 24, 2025
  • Supersedes / Amends Policies Dated: n/a
  • Date(s) of Original Approval: April 24, 2025
  • Responsible Executive: Vice-President (Operations and Finance)
  • Policy-Specific Enquiries: Human Resources Services (HRS)

Table of Contents

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Section A: Preamble

Purpose and Scope

  1. The purpose of this Policy is to guide the University in its role as Administrator with respect to payment of fees and expenses relating to the administration of the Salaried Plans and the administration and investment of the related Funds.

Definitions[1]

  1. Commonly-used terms in this Policy are defined as follows:
    1. Administrator: The University, acting in its capacity as administrator of Plan 2000 or the Original Salaried Plan, as applicable.
    2. Expense – Accounting and Audit: Includes fees and expenses associated with the preparation of pension plan / pension fund financial statements, audit expenses, regulatory compliance costs, and other accounting-related and audit-related fees and expenses.
    3. Expense – Actuarial: Includes fees and expenses associated with actuarial valuations of the Salaried Plans, asset-liability studies, periodic monitoring of the Salaried Plans’ funded status, benefit calculations, and other actuarial work requested by the Administrator.
    4. Expense – Advisory: Includes fees and expenses associated with and including but not limited to investment, legal and pension consultants.
    5. Expense – Investment of Plan Assets: Includes fees and expenses associated with investment of the plan assets; investment strategy development; asset allocation, asset/liability management; execution and settlement of investment manager and pooled fund transactions, including but not limited to investment management fees, record-keeping fees, and performance measurement fees.
    6. Expense – Operation of the Fund: Includes fees and expenses associated with trust and custodial services, management of capital calls associated with real assets, liquidity and cash management, payment of plan expenses, investment accounting and reconciliation of investment activity, preparation of regulatory filings and audit support, oversight of investment activity, and banking charges.
    7. Expense – Plan Administration: Includes fees and expenses incurred in the administration of the Salaried Plans to members and other beneficiaries and captures activities performed by or on behalf of Human Resources required to administer member services to the Salaried Plans such as enrolment, termination and suspension of membership; Salaried Plans interpretation; calculation and payment of benefits and payables; collection of amounts receivable by the Salaried Plans; responding to member enquiries; administering division of benefits on marriage breakdown; and implementation of plan design changes and plan amendments.
    8. Expense – Plan Communications: Includes fees and expenses associated with production and distribution of plan communications such as member benefit statements. For greater certainty, Plan Communications includes printing and mailing costs, and legal and actuarial review to ensure accuracy, clarity and legislative compliance.
    9. Expense – Plan Governance: Includes fees and expenses associated with the preparation and delivery of governance reports and other plan information to the Pension Trust Committee, Planning and Resources Committee, Board of Governors and other plan stakeholders; plan governance; and education for those involved in plan governance or administration.
    10. Expense – Plan Systems: Includes fees and expenses associated with pension administration software; licensing and maintenance fees and related services; ongoing system configuration and programming costs; system upgrade and replacement costs.
    11. Expense – Regulatory: Includes fees and expenses associated with regulatory compliance, regulatory filing fees and assessments, where permitted by the PBA and ITA, and fees and expenses incurred to respond to regulatory enquiries.
    12. Fund: Means the pension fund for Plan 2000 or the Original Salaried Plan, as applicable.
    13. ITA: Income Tax Act (Canada).
    14. MOU: Memorandum of Understanding dated March 26, 1998 regarding Payment of Administrative Expenses Associated with the Pension Plan from the Pension Plan for Salaried Employees of McMaster University Including McMaster Divinity College.
    15. Original Salaried Plan: Contributory Pension Plan for Salaried Employees of McMaster University Including McMaster Divinity College (FSRA/CRA Reg. No. 0215400).
    16. PBA: Pension Benefits Act (Ontario).
    17. Plan 2000: Contributory Pension Plan for Salaried Employees of McMaster University Including McMaster Divinity College 2000 (FSRA/CRA Reg. No. 1079920).
    18. Salaried Plans: Plan 2000 and the Original Salaried Plan, collectively.

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Section B: Policy

Authorization to Pay Administrative Expenses from the Funds

  1. The Salaried Plans are registered pension plans that are subject to the Pension Benefits Act (PBA), the Income Tax Act (ITA), and their related regulations.
  2. The PBA generally permits the reasonable fees and expenses relating to the administration of the pension plan, and the administration and investment of the pension fund, to be paid from the pension fund,[2] so long as (1) the documents that create and support the pension plan and pension fund do not preclude such payment; and (2) the PBA and its regulations do not prohibit such payment or compel some other means of payment.[3]
  3. Payment of such administrative fees and expenses is considered a “permissible distribution” from a pension plan under the ITA and its related regulations.[4]
  4. The terms of the Salaried Plans authorize the payment of fees and expenses relating to the administration of each Salaried Plan and its related Fund, from the applicable Fund.[5] For this purpose, “payment” includes reimbursement to the University of fees and expenses paid by it in the first instance.
  5. For clarity, fees and expenses incurred for the benefit of the employer (plan sponsor), or any bargaining agent or employee group, are not permitted to be paid from any Fund (for example, advisor fees incurred in connection with collective bargaining). Nothing in this Policy shall be interpreted to authorize any payment from a Fund otherwise prohibited by the PBA, the ITA, or their related regulations.

Eligible Fees and Expenses

  1. Expenses eligible to be paid by the Salaried Plans are expenses that are for the benefit of the Salaried Plans and/or the Salaried Plan members. The categories of administrative fees and expenses relating to the Salaried Plans that may be paid from the applicable Fund(s) are listed in the table below. New expense categories will require an amendment to this Policy, subject to Board of Governors approval. Consistent with the MOU, such a policy change may be approved by the Board of Governors only if recommended by the Pension Trust Committee as a result of a ballot of all Pension Trust Committee members. A Pension Trust Committee member who abstains from voting is considered to have been balloted.
  2. In accordance with the terms of the Salaried Plans and the PBA, all fees and expenses paid from a Fund shall be reasonable.

Administrative Fees and Expenses Categories

  1. Accounting and Audit
  2. Actuarial
  3. Advisory
  4. Investment of Plan Assets
  5. Operation of the Fund
  6. Plan Administration
  7. Plan Communications
  8. Plan Governance
  9. Plan Systems
  10. Regulatory

Cost of University Employees Engaged in Plan Administration

  1. Certain University employees are engaged in the administration of the Salaried Plans and the investment of the related Funds. To the extent they are engaged in Salaried Plan-related activities, the total rewards cost of such employees is an administrative expense properly payable from the relevant Funds, subject to such annual dollar limit as may be established from time to time in accordance with this Policy. For financial reporting purposes only, these costs are reported in the Plan Administration expense category.
  2. The current annual dollar limits on the total rewards cost payable from the relevant Funds are set out in the Schedule. The limits set out in the Schedule shall be adjusted annually for normal inflation (CPI Canada All Items, December to December). Consistent with the MOU, increases to the Schedule beyond normal inflation may be approved by the Board of Governors only if recommended by the Pension Trust Committee as a result of a ballot of all Pension Trust Committee members. A Pension Trust Committee member who abstains from voting is considered to have been balloted.
  3. The Schedule will be reviewed every three (3) years, and the outcome of such review will be recorded by the Pension Trust Committee and communicated, as necessary, to the Vice-President (Operations and Finance) for information or follow-up.

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Apportionment of Collective Expenses

  1. From time to time, fees or expenses may be incurred in relation to the delivery of products and/or services to more than one of the University’s pension plans (“collective expenses”). Where a collective expense is payable from the applicable pension funds, employees of the Administrator shall apportion the collective expense to the applicable pension plan funds on such basis as the Administrator in its sole discretion deems appropriate in the circumstances (e.g., active, inactive or total member headcount; applicable asset/liability base; or some other basis).

Oversight by Pension Trust Committee

  1. The Pension Trust Committee will at least annually monitor the administrative expenses paid from the Salaried Plans’ Funds in accordance with its Terms of Reference, as amended from time to time. Any findings resulting from such annual review will be recorded by the Pension Trust Committee and communicated, as necessary, to the Vice-President (Operations and Finance) for information or follow-up.

Interpretation and Application

  1. If an issue arises with respect to the interpretation or application of this Policy, University staff authorized to direct payment of administrative fees and expenses under this Policy may engage legal counsel, pension consultants or other advisors to determine the proper interpretation or application. Those advisors may be advisors to the University in another capacity.

Amendment

  1. Amendments to this Policy are subject to review and approval of the Pension Trust Committee and the Board of Governors in accordance with its By-Laws in force from time to time.

Related Procedures or Documents

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Appendix A: Applicable Plan Provision

Section 14.03 of Each Salaried Plan

“14.03 Expenses

All normal and reasonable fees and expenses incurred in the operation of the Fund and the Plan shall be paid from the Fund, unless paid by the University. Fees and expenses of the Administrator and its agents, arising from the administration of the Plan, may be paid from the Fund unless paid by the University, subject to review of the Pension Trust Committee (or successor) so long as:

  1. such payment qualifies as a permissible distribution under the Income Tax Act; and
  2. such payment is not prohibited by the Pension Benefits Act.”[6]

Schedule: Cost of University Employees Engaged in Plan Administration

Re: Policy articles 10-12

The base administrative expense allocation for Human Resources for calendar year 2024 is $315,548.20.[7]

The base administrative expense allocation for calendar year 2024 for Treasury is $45,174.80.

The foregoing expense allocations shall be adjusted annually for normal inflation (CPI Canada All Items, December to December).

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Notes

[1] For purposes of this Policy, the use of the term “member” refers to a “Member”, “Former Member” or “Pensioner” as defined in Plan 2000 or the Original Salaried Plan, as applicable.

[2] PBA, s. 22.1(1, 4).

[3] PBA, s. 22.1(2, 5).

[4] Income Tax Regulations, s. 8502(d); Canada Revenue Agency Registered Plans Directorate RPP Technical Manual, §8.4.

[5] Refer to Appendix A: Applicable Plan Provision.

[6] Language used in items (a) and (b) is aligned with the respective Act.

[7] On October 24, 2024, the Board of Governors approved an increase to the base administrative expense allocation for Human Resources by $177,525 effective May 1, 2024. The administrative expense allocation for Human Resources is inclusive of this increase.

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