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© Copyright 2000 Rogers Media. The following article first appeared in the June 2000 edition of
BENEFITS CANADA magazine.
Letters
False impressions Re: "Decisions, decisions,"
By Hugh O'Reilly, March 2000
Hugh O'Reilly's article on defined contribution (DC) plans brings to the fore a number of issues which are
often ignored by DC plan sponsors. When many plan sponsors were encouraged to convert their defined benefit
(DB) plans, or establish DC plans, many of these concerns were not addressed. We now have an industry that
is encouraging DC plan sponsors to operate with the same level of governance and fiduciary care that was
formerly the domain of DB plans. Clearly, this is increasing the cost for employers offering DC plans.
While I am certainly in favour of DC plans where they are appropriate, it may be time for plan sponsors to
consider the merits of DB plans without the unwarranted claim that DB plans are too expensive. With the
maturation of the DC side of the business, we are undoubtedly going to see plan members questioning their
employer's decision to implement a DC plan.
The best answer for employers is to review their objectives for their retirement programs. Too many DC plan
sponsors are creating the false impression that a comfortable retirement at age 65 is assured. If this is
the company's real objective, a DB plan is likely more appropriate. If it is not, then clear communication
is necessary to protect all the parties involved.
Joseph Nunes, President
Actuarial Solutions Inc., Oakville, Ont.
In defence of flex Re: "Passing the buck"
By Kathryn Dorrell, May 2000
This article struck me as a totally one-sided view of the flexible benefits issue. Here is the other side.
The introduction of flex (and there are many different types), in my experience, does not reduce costs. In
fact total costs often rise due to significant up-front costs and because the act of communication and
education of employees invariably leads to an increased awareness of what is covered and an increase in the
claiming pattern.
When Parmalat Canada introduced a version of flex, we designed the plan knowing that the estimated costs
were in fact slightly higher than the costs of the old plans. We did this so that employees would know that
it was not, in total, a reduction. Obviously, it was a reduction for some employees--and we heard from
them--but it was an increase for others, from whom we never hear.
Flex redistributes costs more equitably between employees. We introduced flex as part of an overall
compensation philosophy, which was consistent in its message that employees and the company were joint
partners and shared in the risks and rewards of the whole benefits package. Yes, flex can be used to
control future costs, and I mean control, not just cost shifting. When employees have a real interest in
the equation, it is remarkable how they learn to be educated consumers.
Jim Norton is correct; there are other ways to control costs and we should all use them. But that doesn't
mean we shouldn't also use flex. And, yes, employees readily see static flex credits or static healthcare
spending accounts. What they don't see is that the status quo would not have been maintained anyway.
Employers simply can not continue to absorb the constant rise in heath costs and the old plans would be
reduced on a regular basis if left in place. It is far simpler for all concerned, including employees, to
have a plan design that recognizes that fact.
John Dalton,
Vice-President
Compensation and Benefits
Parmalat Canada, Toronto
CORRECTIONS
The Top 100 Pension Funds of 2000 in the April issue of BENEFITS CANADA, overstated the 1999 assets of the
Telecommunication Workers Pension Plan. The market value of the Telecommunication Workers Pension Plan as
of Dec. 31, 1999 was $1.6 billion. The market value of the plan as of Dec. 31, 1998 was $1.7 billion.
"Effective Fiduciary Communications," also in April, incorrectly stated an amount in an example of the
funding of a pension plan. The line on page 70 should read "... 48% to 59% due to a 7% positive difference
in operating results, . . ."
Standard Life Portfolio Management's assets under management as reported in the April Top 40 Money Managers
of 2000 requires clarification. At issue are pension assets managed for Canadian subsidiaries of
international organizations.
The firm's total pension assets as of Dec. 31, 1998 should have been $2.4319 billion. Total assets under
management as of Dec. 31, 1998 should have been $14.776 billion. Total assets under management as of Dec.
31, 1999 should be $15.091 billion. Given that restatement, the firm's year-over-year growth in pension
assets under management is 52.8% as of Dec. 31, 1999.
There is also a change to report on Standard Life Assurance Co.'s figures in May's Special Report on Group
Insurance. Pension contributions for the year ended Dec. 31, 1998 should be $915.7 million. So, in 1999,
the firm saw an increase of $667.4 million (72.9%). Pension assets managed as of Dec. 31, 1999 should be
$7.255 billion, representing an increase of $1.2257 billion (20.3%). In terms of overall business, Standard
Life is restating its 1998 revenue figure to $1.1186 billion. That means an increase of $730.5 million
(65.3%) in 1999.
The May 2000 Annual Special Report on Group Insurance incorrectly identified Michael Beck, senior
vice-president, group insurance at Clarica Life Insurance Company in Waterloo, Ont. Our sincere apologies
for the error.
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