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© Copyright 2000 Rogers Media. The following article first appeared in the January 2001 edition of
BENEFITS CANADA magazine.
Industry
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Standard Life fires group
staff in two separate incidents
Officials at Standard Life Assurance Co. likely breathed a sigh of relief as 2000 came to a close. The
company faced a tough time in November and December after it publicly announced that it had fired 18 staff
in its group pension division in two separate incidents.
In December, Standard announced it had fired five staffers in its pension and group insurance sales
division, just weeks after admitting it fired 13 staff in its pension administration office in Montreal
last January over a trading scheme involving two of its segregated funds. The salespeople in the pension
and group insurance division are accused of sharing commissions with brokers.
According to a statement released by the company, the employees appointed a broker without the clients'
knowledge and loaded, in the premiums, commissions that were subsequently paid by the clients. The brokers
then paid the employees a portion of these commissions.
Standard says the scheme affected 80 clients and that it plans to reimburse the organizations for $1.8
million plus interest. The employees and brokers involved had been sharing commissions over the course of
12 years.
"It's a pretty minimal amount per year per client, if you divide $1.8 million by 80 over 12 years. That's
why it was so difficult to find out what was happening." says Michel Dufour, manager of communications with
Standard Life in Montreal. "It was a collusion between a number of employees and a number of brokers. It
was really restricted. It wasn't widespread."
Standard Life is suing the former employees and four brokers involved for reimbursement of the funds.
"It's another example of how companies have to have some internal controls to catch things," says Sharon
Wilson, an investment consultant with William M. Mercer in Toronto of this latest ordeal. "Since clients
ultimately pay for commissions through the price of the products, it does have an impact on the client."
Standard Life's internal investigation started last February. The firings took place later in the year. The
company won't reveal which offices the employees worked in because it's involved in litigation with the
former employees and the brokers.
In late November the company announced that it had fired 13 employees last January at its Montreal head
office after uncovering a scheme in which employees made trades based on the underlying securities in two
of the company's segregated funds. Policyholders lost about $500,000 as a result of the employees' trading,
says Dufour. The company has reimbursed clients for the losses.
"Back in October [1999], we detected inappropriate investment habits in one of our clients. During this
investigation, we discovered a number of employees were following the same pattern. We corrected the
situation in November and December [1999] and in January, when we noticed the employees were still doing
it, we decided to act because those employees were in violation of our code of conduct," says Dufour.
Employees took advantage of the difference in time zones between the United Kingdom and North America.
Employees profited by being able to predict whether the segregated funds--an international equity fund and
an emerging markets fund--would increase or decrease in value the next day, based on the performance of the
underlying securities on that day's trading.
Dufour says the company has taken steps to ensure the problem does not arise again by eliminating the time
difference between the closing of markets in Europe and the posting of the same unit values in Canada. "The
values posted now are the actual values and not the values of the previous day," says Dufour.
Dufour says the company acted quickly to inform affected clients of the situation.
The two incidents are of little concern to at least one Standard Life client. Marie Murphy is human
resources manager with WCI Canada Inc. in Cambridge, Ont. "We shouldn't be too quick to judge Standard
Life," she says. "It was their employees [involved in wrongdoing]. Every company has its problems."
She adds that she's glad the company took appropriate action and didn't try to sweep the incidents under
the carpet by not dismissing the employees.
Toronto-based Four Seasons Hotels Ltd. uses Standard Life as its recordkeeper. Karen Welch, director of
benefits with Four Seasons, says the 13 firings in Montreal didn't have a financial impact on her company
but that "Standard Life handled it well and called us when the news started breaking."
Mercer's Wilson says her clients don't seem overly concernecd about the firings that took place in
Montreal. "I don't think they [plan sponsors] really understand what the issue was because if you're not
from the industry, it's not really clear what or who was affected," she says.
Wilson does believe, however, that Standard Life should have alerted clients and consultants earlier about
the 13 firings in Montreal. "They obviously had some controls and a process that worked, so that's
positive," she says. "My only concern was that they didn't disclose it right away. They thought it was
immaterial and from a financial point of view, it was immaterial [but] it concerned us that they let a very
large chunk of their administration team go because that had the potential to affect client service."
Wilson believes the 13 firings in the Montreal office at Standard Life will cause other insurers to examine
their company's trading practices and policies. "They should be [doing audits]. If they're not, you have to
question why because the potential [for inappropriate trading] exists any time there's an inefficiency."
--with files from Kathryn Dorrell
SERPs falling behind
Two new surveys on the use of supplemental employee retirement plans (SERPs) reveal that plan members
receiving this benefit could be in for a surprise thanks to tax limits imposed by the Income Tax Act on
retirement benefits from registered plans.
SERPs are a form of top-up payment given to employees to increase their pension benefits. They used to be
known as supplemental executive retirement plans. The payments come from the general revenue of the
employer, rather than the pension fund itself.
One out of every six salaried employees in Canada could be affected by the tax limits according to Watson
Wyatt Canada. In 1976, the government increased the maximum pension a plan member can receive to $1,722 per
year of service. At the time, that maximum would have affected an employee earning roughly $85,000 per
year. SERPs provide an extra top-up payment above and beyond the maximum pension limit set by the federal
government. Nowadays, $85,000 per year is hardly considered an executive salary but Revenue Canada (now the
Canada Customs & Revenue Agency) has never increased the maximum limit.
In addition, research from Towers Perrin shows that 67% of plan sponsors that it surveyed haven't funded or
secured their SERP benefit, raising questions about whether these obligations will be met. In addition, the
survey reports that only 12% of those companies surveyed had set aside assets to meet the liabilities they
are accumulating. Less than one-quarter (17%) report making some other provision for securing funds for
their SERPs.
Communication is another area of concern. Less than half (49%) of respondents to the Towers Perrin survey
issue periodic SERP benefit statements to plan members.--Andrea Davis and Kathryn Dorrell
Venturing into VC
Institutional investors interested in venture capital have a new tool to help them research the market.
Toronto-based Macdonald & Associates Ltd. has launched a Web site that tracks trends and developments
in Canadian venture capital.
The site, VC Reporter (www.canadavc.com), contains information on more than 200 professionally managed
venture capital funds. Subscribers can query the site and get information on 17 sectors and 150 subsectors.
Searches can then be narrowed by province, deal size and time period. The database currently contains three
years' worth of venture capital deals but plans are in the works to get information dating back to 1991
online.
"[Reaction to the site from] the institutional side will be interesting because so many pension funds have
sat on the sidelines through this whole era of development," says Mary Macdonald, president, Macdonald
& Associates Ltd.
New arthritis drug approved
Health Canada has approved a new drug for the treatment of arthritis. Mobicox is an anti-inflammatory known
as a COX-2 inhibitor. The drug's manufacturer, Boehringer Ingelheim is currently applying to have the drug
listed on public and private drug insurance plans across the country.
The new drug is priced at $0.78 per day, compared to $1.25 per day for the other two drugs in the same
class, Celebrex and Vioxx. Dr. Bert Tjeenk Willink, vice-president, prescription medicines with Boehringer
Ingelheim says the drug company did market research with physicians prior to launching the drug and that
physicians said they were looking for a cheaper alternative in the class.
Jean-Luc Blais, director of public affairs with Merck Frosst, which manufactures Vioxx, says he's not
worried that Mobicox will take market share away from Vioxx. "Mobicox is another player in the market," he
says. "They've decided to price themselves lower than Vioxx and Celebrex. Our contention is that, based on
the studies we have, [Mobicox does] not provide the same level of protection against ulcers and
gastrointestinal bleeds."
Prices of patented medicines, such as Mobicox, Celebrex and Vioxx, are limited by the Patented Medicine
Prices Review Board (PMPRB). "The [PMPRB] does not set prices," says Sylvie Dupont, secretary of the board,
in Ottawa. "We review prices to ensure they're not excessive."
To determine if a patented drug sold in Canada is excessive, the PMPRB applies factors set out in the
Patent Act and in its price guidelines. For example, existing patented drug prices cannot increase by more
than the Consumer Price Index, while most new patented drug prices are limited so that the cost of therapy
is in the range of the cost of therapy for existing drugs used to treat the same disease. In addition,
breakthrough drug prices are limited to the median of the prices for the same drugs charged in other
specified industrialized countries that are set out in the regulations under the Patent Act.
Celebrex, Vioxx and Mobicox are different from traditional anti-inflammatory drugs because they have little
or no effect on patients' gastrointestinal systems. Previous generations of arthritis therapies relieved
pain and inflammation but potentially damaged the stomach lining, which led to ulcers in some patients.
More than four million Canadians have arthritis, according to statistics from The Arthritis Society.
Rx Plus changes
name and focus
Claims processing company Rx Plus has changed its name to ClaimSecure.com to reflect its new focus and
capabilities as an application service provider (ASP). The company claims to be the first ASP in Canada
that can currently administer and process drug, dental and extended healthcare claims online in real time,
either through the Internet or dedicated lines. Its objective is to partner with insurers and other
third-party providers that control plan sponsor healthcare business.
Paul Hardwick, the Mississauga, Ont.-based company's president, says that the ASP model is a money-saver
for insurance companies, because it allows them and other third-party providers to "turn off their own
claims processing system, [which is] a huge savings." Hardwick adds an ASP system enables third-party
providers "to control their information technology expenses and spend their money on marketing and
differentiating themselves [while] keeping claims expertise in-house so [they are] not outsourcing this
core area of expertise."
As far as benefits to plan sponsors, Hardwick claims that the online system gives organizations more
control over their plan with direct access to information. "Plan sponsors can check drug coverage with
other provinces, and obtain bilingual reports on how much they spent on dental or drugs [during a certain
period]."
--Kathryn Dorrell
FGI buys CHC
Employee assistance program (EAP) provider FGI has bought up another major EAP player, CHC Working Well.
FGI says the acquisition will make it the country's largest EAP provider, serving more than 1,800 companies
around the world.
"There is unprecedented demand for human development services from global and domestic organizations," says
Bruce Peter, president and CEO of CHC Working Well, noting that "attracting and retaining the best people
has become a priority for the vast majority of employers."
But bigger isn't necessarily better, says one EAP provider.
"The landscape certainly has changed over the past year and it will continue," says Bram Lowsky, president
of Markham, Ont.-based Ceridian Performance Partners. "Those that are going to be effective and successful
are the ones that listen to what the issues are, such as work-life balance, and address them. You don't
need to be the largest to do that."--Kathryn Dorrell
Correction
The Standard Life Assurance Company was inadvertently left off the Fastest Growing (in percentage terms)
chart in last month's Defined Contribution Plan Report. The firm's defined contribution plan assets grew
47.9%, from $2.253 billion to $3.331 billion as of June 30, 2000. That ranks Standard Life fifth among the
fastest growers.
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