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© Copyright 2000 Rogers Media. The following article first appeared in the November 2000 edition of
BENEFITS CANADA magazine.
Insights
Contrarian views, news and international intrigue
By Andrea Davis
Reality check
Canadian defined contribution plan members could be in for a rude awakening when the next market correction
rolls around, judging by the results of The Talvest Report 2000 on Canadian Investors. The trouble
spot is with negative returns. When asked what the lowest acceptable return would be over a 10-year period
only 28% cited returns in negative territory while almost one-third said they would be between 0% and 5%.
"This is divorced from reality. Unless the stock market finds a way to defy gravity, this is going to be a
problem," says Dan Richards, president of financial services consulting firm Marketing Solutions, the
company that wrote the report.
Richards says the report illustrates that Canadian investors don't understand basic investment concepts.
Indeed, it reveals that only 17% were aware that the Canadian market had outperformed the U.S. since the
start of 1999. Half of all Canadians surveyed do not have a financial plan, according to the report, which
means it's difficult to establish any sort of expectation, says Richards.
When asked about their concerns over stock market volatility, 8% of respondents say they are very
concerned, 36% say they are somewhat concerned while 41% are not very concerned and 15% say they are not at
all concerned. These results are troubling considering respondents' expectations for returns are so rosy.
"The high performance of technology stocks since 1990 seems to have eroded the buy-and-hold mindset that
once tempered investors' anxiety about poor short-term performance during periodic downturns," says
Richards. "Now the attitude during downturns seems to be 'I don't want diversified risk, I want the
winners.' That's not realistic." Richards adds that those parties advising individuals need to tackle the
issue of volatility head on and help them look beyond the short-term ups and downs.
--Kathryn Dorrell
Health in cyberspace
Canadian plan members are surfing the Internet for health information more than ever before. While the No.
1 source of health information for Canadians is still their family physician, 22% say they use the net to
access health-related information. The results are from HealthInsider, a semi-annual survey
conducted by the healthcare practice of PricewaterhouseCoopers LLP.
According to the survey, most people go online to get information about a specific illness, but some are
also using the Internet to diagnose themselves, confirm or dispute a physician's diagnosis, manage their
medical condition, check the results of clinical studies or chat with others who have similar health
conditions. Canadians are most interested in information about healthy lifestyles, specific diseases and
medications.
"The Internet is quickly becoming integrated into the way Canadians receive healthcare," says Dale
McMurchy, a senior healthcare consultant with PricewaterhouseCoopers.
Those polled say they use the Internet because it helps them make better choices about their health and is
available 24 hours a day from the privacy of their home.
The study suggests benefits plan members are becoming more interested in their own healthcare, which can
only bode well for plan sponsors.
Endowment assets
Canadian endowment funds like the Canadian bond market, according to a recent survey of 54 funds. The
average endowment fund has 40% of its funds invested in Canadian bonds, followed by Canadian equity at 23%.
SOURCE: Canadian Foundations and Endowment Funds Directory 2000.
In Fact
Disability and absence management costs are on the rise. According to a survey from consulting firm Watson
Wyatt, these costs are now 7.1% of payroll, up from 5.6% in 1997.Other points of interest:
The average direct cost of employee absenteeism in Canada is now $3,550 per employee per year.
Short-term absence costs, as a percentage of total payroll, have more than doubled from 2% in 1997 to 4.2%
in 2000.
Long-term disability costs, as a percentage of total payroll, have increased by 8% since1997.
Combined direct and indirect costs--including the cost of replacement workers and lost
productivity--account for 17% of payroll.
SOURCE: The 2000 Staying@Work survey, Watson Wyatt.
Communication priority
In real estate, it's location, location, location. In pension and benefits, it's communication,
communication, communication. Employee communication is identified as one of the most important issues for
employers in 2001, according to a recent survey from consulting firm Morneau Sobeco. Of 327 organizations
surveyed, almost 52% say their big priority for the coming year is to review their employee communications.
"Generally speaking, there's not a big variance in market competitiveness anymore between pension and
benefits plans," says Jeff Schmidt, a partner with Morneau Sobeco in Toronto. "Everybody knows what a good
plan is and everybody keeps up with the company down the street. So the emphasis now is going towards
making sure people appreciate and understand the value of the program."
Companies are also building up their online communication programs. Among smaller companies with less than
$100 million in sales volume, 15% say they're using online communications currently and 23% expect to
implement an online communications program next year. Among mid-size companies with $100 to $500 million in
sales volume, 23% are using online tools already, while 46% are planning on using online communication
tools in the coming year.
Exercise beats drug
Exercise is a potent antidepressant, perhaps even better than medication, according to a new study
published in the journal Psychosomatic Medicine.
The 156 Americans who participated in the study had all been diagnosed with major depression. They were
given one of three treatments: regular physical workouts at an exercise centre, the antidepressant drug
Zoloft, or a combination of the two. The exercising group worked out, at up to 85% of their maximum heart
rate, on a treadmill or stationary bicycle for half an hour three times a week. The combination group
followed the same exercise regimen in addition to taking Zoloft.
After 16 weeks, the three groups had similar results. They all had significantly lower rates of depression.
After an additional six months, though, the exercising patients were much less likely to have relapsed.
Only 8% of patients in the exercise group saw their depression return, compared to 38% in the drug-only
group and 31% of the exercise-and-drug group.
"The important conclusion is that the effectiveness of exercise seems to persist over time, and that
patients who respond well to exercise and maintain their exercise have a much smaller risk of relapsing,"
says James Blumenthal, the lead researcher on the study and a psychologist at Duke University Medical
Center in North Carolina.
Blumenthal and his colleagues are planning a new study that will involve some participants exercising at
home. This may determine how much of the benefit was derived from the actual exercise and how much came
from the supportive atmosphere at the gym.
Workplace disloyalty
Canadian plan sponsors need to put more energy and attention into managing their workforce to boost loyalty
at the workplace, conclude authors of a new international study. Canadian workers are among the least loyal
in the world, according to the U.S. study that surveyed 32 nations and rates only one in seven Canadian
employees as "truly loyal" to their organization. Canada ranked 16 out of 32 countries based on worker
loyalty. To gauge worker loyalty, the study, conducted by Indianapolis-based Hudson Institute, surveyed
responses from 10,000 workers (including 4,000 in Canada) on subjects such as whether respondents feel like
part of a family at their organization and if they intend to still be there in two years.--Kathryn
Dorrell
Shiny, happy people
Montrealers are the happiest employees in Canada and Toronto workers are the most miserable, according to a
survey commissioned by online recruiting firm Jobshark.com. Torontonians are dragged down by long hours,
inadequate pay and office politics, as well as little opportunity to advance, says the survey. The study
finds that workers between the ages of 20 and 40 cite office politics as the major source of workplace
unhappiness. Nationally, however, 39% of the 500 employees surveyed report that they are "extremely happy"
in their jobs. Just over one-third of respondents say their dream job would be as president of a successful
dot-com firm.--Kathryn Dorrell
Liquid assets
A pint to go with your pension? A German court has ordered that two retired brewery workers should each
receive 264 pints of free beer a year as part of their pension packages, according to reports from news
agencies Reuters and Deutsche Presse-Agentur. In addition, the court ruled the workers should be
compensated with 450 litres of beer due them since they filed their lawsuit three years ago.
Kronen Privabrauerei Dortmund GmBH &Co., a brewery in Dortmund, Germany, had promised all of its
workers and retirees 240 litres of free beer a year. But after the company was bought by another firm in
1996, the liquid benefit was discontinued.
Q & A
Do DC plan sponsors have a role to play in providing plan members with financial advice?
I personally believe they do, but it's a role that is fraught with potential pitfalls. It's difficult to
know how much financial advice to provide, who should be providing it and how to know whether it's really
objective and doesn't compromise the sponsor's role.
What are the risks involved for plan sponsors who do want to provide access to financial advice?
One of the big questions is who's going to provide that advice. We want to make sure the person providing
the advice is providing objective advice, that it's in the employee's best interests, that it's
comprehensive to the needs of the employee. You want to make sure, ideally, that financial decisions the
employee makes with regards to their pension plan are coordinated with the other retirement savings that
person might have.
You see a trend towards financial education becoming a standard employee benefit, much like drug coverage.
Why?
When you've got a DC plan, the decisions the individual employees make can make a big difference in what
they end up with at the end of the day. So you could have two employees making the same amount of money,
contributing the same amount on an annual basis. One might build a well-constructed portfolio and one might
be overly aggressive or overly cautious and end up not having enough money for retirement. And that just
doesn't seem quite right to me. So we'll probably see a trend towards employers helping their employees
become better informed so they can make good financial decisions.
In your book, you say there will be a trend towards employees who are considering moving from a DB to a DC
plan being required to get their own independent advice, or having to waive their right to that advice,
before signing any official papers. Why is that?
I think for a number of employees, DC looks really good on the surface but they don't realize the amount of
risk that they personally are taking on.
If you go from a defined benefit plan to a DC plan, people just don't have the skills in today's
marketplace to know what to do. A lot of people think they do and they may be misguided because when the
market goes up, it looks like investing is reasonably easy. But there are very definite investment
disciplines and financial planning strategies that will enhance the income they have at retirement, as well
as help the employee be more focused and comfortable with what they're doing.
Sandra Foster is the author of Who's Minding Your Money? Financial Intelligence for Canadian
Investors. She spoke to benefits canada about the need for financial advice programs in defined
contribution (DC) pension plans.
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