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© Copyright 2000 Rogers Media. The following article first appeared in the December 2000 edition of
BENEFITS CANADA magazine.
Industry
By Andrea Davis
TD Bank sells group business
Canada Life Assurance Company has bought the group savings business of TD Canada Trust, owned
by TD Bank Financial Group. The deal is part of a swap that will also see Meloche Monnex Inc., TD's
property and casualty subsidiary, acquire Canada Life's property and casualty business.
"The deal complements our business line nicely because they [TD] are in a large case market and we're
focused on mid- to large cases," says Ken Richards, assistant vice-president, marketing with Canada
Life in Toronto. "They have a strong presence in Ontario and in the West, which complements our presence in
Ontario and the East."
The acquisition doubles Canada Life's recordkeeping business to $10.2 billion. "We've had 11 acquisitions
over the years and we feel that's a good way to grow our business," says Richards. "Size matters in terms
of the investments you need to make in the recordkeeping systems and the infrastructure to support plan
member and plan sponsor needs. [The] bigger block certainly allows [us] to be in economies of scale and
have those investment dollars."
Staff from TD's group business will move over to Canada Life. Earlier this year, TD Bank Financial Group
acquired Canada Trust Financial Services.
The deal will also result in a net cash payment of $75 million by TD to Canada Life. Both deals are
expected to close by month's end, subject to regulatory approvals.
For its part, TD says the company decided to sell its group business, which it acquired when it bought
Canada Trust earlier this year, in part because it couldn't continue to make investments in the business.
"This is a business where in order to compete and be effective at it, you have to make significant
investment over the long run in systems and technology and we struggled to make that investment, given our
other priorities," says Fred Tomczyk, president and chief executive officer, TD Wealth Management in
Toronto. "We were struggling to make that and so we wanted to find someone who was willing to make that
investment and was totally committed to the business."
Tomczyk, who came to TD from Canada Trust, says the group business became less of a priority for Canada
Trust in recent years as it increased its focus on retail financial services. "For a number of years we did
well but I think the last couple of years we found it harder, given Canada Trust's focus on retail
financial services. Now that we're into the integration with TD, we felt we weren't going to get to making
that investment so we felt it was time to actually find a home for it where it was going to get the
investment it needed," he says.
--with files from Kevin Press
Pensioners sue Royal Bank
group of Royal Trust pensioners from across Canada have launched a class action suit to assert their
rights to a $150 million surplus in their pension fund and seek damages for what they claim were wrongful
actions by the Royal Bank over the course of a decade.
Former Royal Trust employees, representing an estimated 2,500 members of the Royal Trust plan, filed a
statement of claim on Oct. 19 in the Superior Court of Justice in Ontario against Royal Trust and Royal
Bank.
The group of pensioners call themselves the Association for Pension Enhancement at Royal Trust
(APERT). Paul Starita, a former Royal Bank employee and the group's spokesperson, says the group was
forced to initiate the suit because the Royal Bank has refused to meet and negotiate with the pensioners
regarding their concerns.
"The Royal Bank has indicated to us that it is not prepared to do anything unless we force them through the
courts," he says. The last meeting between the bank and the pensioners took place in April.
"The objective of APERT is to see the surplus used to benefit members through enhanced benefits or
distribution of the surplus," says Paul Vogel, a lawyer with Cohen Highley LLP, the firm
representing the pensioners.
The statement of claim filed in court alleges that in 1985, Royal Trust's predecessor, Royal Trustco
Limited, reduced the formula for calculating pension benefits for each year of pensionable service from 2%
to 1.25% and that the company failed to properly notify plan members. Ken Schofield, a pensioner and
30-year employee of Royal Trust, says the move has cost him thousands of dollars a year in lost pension
money.
"I would like a pension based on the formula I was hired at," he says.
"A big chunk of our organization was clerical people," adds Schofield. "There are people out there
struggling to get by. I see a gross injustice. I see a large surplus. I see Royal Bank announcing profits
that would knock anybody's socks off and they need this money? They need it like a hole in the head. We
have struggling pensioners and this [enhancement of benefits or distribution of surplus] would really make
their lifestyles a lot better."
In a statement, the Royal Bank says APERT's lawsuit has no merit.
"A pension surplus stabilizes and strengthens the pension fund to provide, among other things, a cushion
from the volatility of the financial markets, thereby ensuring the pension benefits are protected for all
plan members. There is no reason to consider the distribution of the surplus from the plan and there is no
requirement to negotiate a surplus splitting arrangement for a plan that continues to be in effect.
Decisions of the courts and the Financial Services Commission of Ontario support these conclusions," says
the statement.
Iain Sneddon, a lawyer with Cohen Highley LLP, says most case law surrounding pension surplus deals
with situations where the plan sponsor is seeking to wind up the plan. He cites Schmidt vs. Air Products
of Canada as a leading case on surplus.
"What the Supreme Court of Canada ruled in Schmidt is that you have to look to the plan documents
and what they say," says Sneddon. "What employers would do is use the pension plan wording, which would
usually contain a broad power of amendment, and rely on that broad power of amendment to put in a provision
similar to what Royal Trust has done here, that the surplus belongs to the employer.
"What the Supreme Court of Canada said [in the Schmidt case] was that the broad power of amendment
is not sufficient to do that. You have to look at the originating plan documents and unless there is a
specific revocation clause, you cannot use your power of amendment to later claim ownership of the
surplus."
Sneddon believes the Royal Trust case is also about runaway surplus.
"We're talking about an extraordinary amount of surplus," he says. "The Royal Bank indicated in their
statement that surplus is a good thing, that it's good to have a buffer. I don't disagree with that
statement but it should be an appropriate buffer. In this case, the surplus is massive relative to the
assets. You would need an economic catastrophe the likes of which we have never seen since at least the
Great Depression before the amount of surplus would ever be necessary to cover what the Royal Bank is
stating is to act as a buffer."
Market returns in recent years have helped grow the surplus to more than half of the plan's assets.
Sun Life acquires interest in tech company
Sun Life Assurance Company has acquired a 30% interest in technology company Seclon Inc. The
Don Mills, Ont.-based company develops applications and software for the pension and benefits plan
marketplace. Its main product is a Web-based retirement calculator.
"From our standpoint, the deal gives us access to some Internet expertise and skills we'll be able to
leverage in all our Canadian companies," says Cathy Honor, vice-president, group retirement services
with Sun Life in Toronto. "They've got a value-added product that our clients can benefit from."
For its part, Seclon gains access to Sun Life's substantial distribution network. "When you're a small
company, the issue is distribution. You may have a good product but if you can't distribute it, you're
going to have trouble growing," says Jean-GuySauriol, president, founder and chief executive officer
of Seclon. "From our perspective, Sun Life brings a significant distribution channel."
In other news, Sun Life launched an online termination portal last month. Plan members who terminate their
service in a pension plan can visit the site and complete the necessary paperwork, execute transfers of
funds and get disclosure information online.
New antibiotic approved
Health Canada has approved a new antibiotic, Avelox, designed to treat patients with common
respiratory tract infections, including pneumonia, bronchitis and sinusitis. Respiratory tract infections
accounted for 10 million prescriptions, or 60% of all antibiotic prescriptions, in 1999.
"One of the challenges for physicians treating respiratory tract infections is to determine which bacteria
is causing the infection," says Dr. Lionel Mandell, chief of the division of infectious diseases and
professor of medicine at McMaster University in Hamilton, Ont. "Avelox provides excellent coverage
of the common respiratory pathogens and demonstrates a low level of antibiotic resistance. This is good
news because getting treatment right the first time will allow patients to feel better faster, minimize the
number of repeat prescriptions and limit the spread of infections."
The drug, manufactured by Bayer Inc., costs $44 for a five-day course and $87 for a 10-day course.
Xenical used for diabetes treatment
Fat-blocking drug Xenical significantly reduces weight among patients with type 2 diabetes and can
significantly improve long-term blood sugar control, says new data presented at the 17th International
Diabetes Federation Congress in Mexico City last month.
More than 1.5 million Canadians are diagnosed with type 2 diabetes, also known as adult-onset diabetes. An
estimated 750,000 Canadians have the disease but don't know it. If left untreated, the disease can lead to
heart attack, stroke, kidney failure, blindness and amputation.
"People with type 2 diabetes have a two-to-four fold increased risk of dying from cardiovascular disease,"
says Dr. Lawrence Leiter, professor of medicine and nutritional sciences at the University of
Toronto and head of the division of endocrinology and metabolism at St. Michael's Hospital in Toronto.
"Weight reduction has been shown to improve blood sugar levels as well as other metabolic abnormalities."
Weight is the most important modifiable risk factor for the development of type 2 diabetes.
"Eighty per cent of patients with type 2 diabetes have the disease because they are overweight," says
Dr. Ehud Ur, associate professor of medicine at Dalhousie University in Halifax. "It makes a
lot of sense to use a medication to help a patient lose weight in these circumstances."
In the study of overweight patients with type 2 diabetes receiving insulin, those taking Xenical in
addition to a fat-reduced diet lost significantly more weight than patients in the placebo-plus-diet group.
In addition, patients treated with Xenical had greater reductions in their daily insulin dose compared to
the control group.
"It's one of the fallacies of obesity that people have to lose weight and end up looking like Cindy
Crawford," says Dr. Ur. "The reality is that it's often those last few pounds that make someone diabetic. A
patient who is say, 100 pounds overweight can, by the loss of 10 or 15 pounds, make a difference in terms
of their diabetes."
Xenical, manufactured by Hoffmann-La Roche Limited, costs about $1 per tablet. Patients take one tablet
before each significant meal.
TD acquires Newcrest
TD Bank Financial Group has announced plans to acquire Newcrest Capital Inc., an investment
banking and institutional equities firm. The transaction will merge Newcrest with TD Securities, the
wholesale side of TD Bank Financial Group.
Under the terms of the agreement, which is subject to regulatory approval, TD Bank has agreed to pay $224
million to acquire the shares of Newcrest. The purchase price will likely be met through the issuance of
approximately 75% of that amount in TD Bank shares to Newcrest shareholders, with the remainder in cash.
While awaiting regulatory approvals, TD Securities and Newcrest will serve institutional equity and
investment banking clients on an integrated basis starting immediately under the name TD Newcrest.
Robert Dorrance, Newcrest's current chief executive officer will head up the institutional equities group
and will join TD Securities' senior management team as vice-chair.
CCMA launches
A new organization has been launched to help the Canadian securities and financial services industries move
towards implementing T+1 by June 2004. Similar efforts are underway in the U.S. T+1 will shorten the
securities clearing and settlement cycle from the current standard of three days following a trade (T+3) to
the day following a trade (T+1).
The new organization, the Canadian Capital Markets Association (CCMA), represents Canada's banks,
brokers, dealers, investment funds, fund managers, securities clearing and settlement organizations, stock
exchanges and regulators.
The association will identify, analyze and recommend ways to meet the challenges involved in implementing
T+1, with its first task being to coordinate the shortening of the securities settlement cycle.
"It's essential that Canada prepare for T+1 to maintain our global competitiveness with global capital
markets," says Gordon Thiessen, governor of the Bank of Canada, in a statement. "Canada's
financial services industry needs to join together with the U.S. to avoid potential market dislocations."
Canada moved from T+5 to T+3 five years ago.
Individuals who want more information on the CCMA and its activities can e-mail info@ccma-acmc.ca.
Managing investment risk
There are many tools available to help plan sponsors measure risk and they should be used in combination,
along with a healthy dose of common sense, according to Zainul Ali, a partner with Towers Perrin.
Ali addressed a recent Association of Canadian Pension Management meeting. He says one of the most common
risk management tools available to plan sponsors is standard deviation. However, he says the problem with
standard deviation is that it treats downside risk the same as upside risk.
Tracking error is the most widely used measures of benchmark relative risk, adds Ali. He says the average
measure for risk for international equity is 6.62%, noting anything lower is low risk and anything above 9%
or more would be considered aggressive as far as exposure to risk.
Ali also encourages plan sponsors to question their money managers about tracking error figures for their
plan.
"Get your manager to give you a chart that shows how you are performing against your benchmark, investment
by investment," he says. "If you are well diversified there will be more than 50 names on the list."
Ali also addressed Value at Risk (VaR), noting that the risk management tool has its share of critics.
"VaR only talks about minimum risk and there are lots of ways to calculate it. A lowered VaR, for example,
may not be better than a higher VaR. More research is needed."
--Kathryn Dorrell
Corrections * Wendy Mizuno's "Sweet Deal" (October 2000) reported that " . . . 6.7% of Canadians filed tax
returns with incomes between $60,000 and $100,000. Only 1.4% filed returns with incomes over $100,000." It
also reported that Prime Minister Jean Chrétien's accrued annual pension (fully indexed) will be
$103,390. These figures came from research conducted by the Canadian Taxpayers Federation. Elsewhere in the
article, the organization was incorrectly referred to as the Canadian Taxpayers Foundation. For the record,
a federation spokesman says he loved Mizuno's article.
* Myriad Limited Partnership purchased 49.6% of the shares of Addenda Capital Inc. Incorrect information
was listed in the chart ("M&A: Nov. 1999 to Nov. 2000," page 41) in the November 2000 issue. In the Top
40 Money Managers Directory, Nathalie Simard's e-mail address should read n.simard@addenda-capital.com.
Simard is vice-president, marketing and communications with Addenda Capital Inc.And YMG Capital Management
Inc. was left off the Fastest Growing (in dollars) chart. The firm's assets under management grew $1.1589
billion, which would rank it No. 18 on the list.
* Celia Milne's "2000 Drug Trends" (October 2000) misspelled Xenical, the anti-obesity drug manufactured by
Hoffman-LaRoche Limited.
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