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© Copyright 2002
Rogers Media. The following article first appeared in the February 2002 edition
of BENEFITS CANADA magazine.
Insights
| Contrarian views, news and international
intrigue |
| By Deanna Rosolen |
| > |
Insights: Eye on terrorism |
| > |
In Fact: Contolling pension plan costs |
| > |
E-Poll: Is consolidation good for Canada's group insurance marketplace?
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Eye on
terrorism
After Sept. 11, the United Nations (UN) Security
Council introduced the United Nations Suppression of Terrorism Regulations.
Canada, as a member state, adopted these regulations through its United Nations
Act in October. They apply to all federally regulated financial institutions and
so some pension plans are taking a closer look at their investments and
beneficiaries.
The UN issued a list, which will be
updated regularly, that contains the names of organizations and people with
links to terrorism. The UN expects all financial institutions (such as banks,
trust and life insurance companies and credit unions) to freeze the assets of
those organizations, or people, who appear on the list.
When it comes to pension plans, John Beaton,
vice-president of Aon Consulting in Vancouver, says "the duty is to make sure
that they don't knowingly hold money or deal with money of listed persons. The
duty to determine whether there are listed persons in the plan or listed
investments in the fund rests solely with Canadian financial institutions."
In other words, pension plans "don't have to (run
checks)," explains Beaton, "but they might do it as a matter of good
governance." Plan fiduciaries do, however, have a duty to act if they discover
that a person or organization they deal with is on the list.
Jeff Klein, a Vancouver-based retirement practice leader
for Western Canada at Watson Wyatt, says it's unlikely that Canadian pension
funds will have investments on the UN list. "None of (the firms listed) are the
typical money managers," says Klein. "They're not institutional investment
organizations, they tend to be offshore entities or charity organizations."
But should pension plans discover they are dealing with a
listed person or organization, they should freeze all assets and accounts and
report them to the Royal Canadian Mounted Police and Canadian Security
Intelligence Service, says Klein.
If pension plans don't act when they discover a match,
the consequences include civil and potentially criminal sanctions, says Jeff
Graham, a partner at the Toronto law firm of Borden Ladner Gervais LLP. Upon
summary conviction there's a maximum fine of $200 and/or imprisonment not
exceeding three months. The penalty for a full conviction or indictment is a
maximum fine of $5,000 and/or imprisonment not exceeding five years.
Review the regulations at: www.osfi-bsif.gc.ca/eng.
In Fact
Controlling pension plan
costs
The costs of operating a pension plan are on the
rise. Over the last three years, SEI Investments has found a general upward
trend in the fees associated with running a defined benefit pension plan.
The chart shows the increasing costs (in basis points) that pension plan
sponsors are paying to operate a plan. Smaller plans are experiencing the
highest rate of increase. In 2000, plans with less than $100 million in assets
paid 7.8% more in fees than they did the year before. Slightly larger plans with
assets between $100 and $500 million experienced year over year increases of
48.5 basis points in 1999 and 49.4 basis points in 2000.
In an environment of rising costs, it becomes even more important for
Canadian pension plan sponsors to remember their fiduciary duty, ensuring fees
paid to operate a plan are appropriate and justifiable. In addition, as pension
plan costs become an even larger burden on organizational budgets, cost
constraint efforts will be both a corporate and fiduciary responsibility.
Source: SEI Investments.
Figures shown are based on SEI's annual Pension Plan Sponsor Fee Survey. Total
costs include categories such as investment management, brokerage, consulting,
administration, custody, audit, legal and any internal fees.
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Health spending by numbers
> Total health
spending was estimated at $89.5 billion in 1999, and is forecast to have reached
$95.9 billion in 2000 and $102.5 billion in 2001.
> Total healthcare
spending as a percentage of gross domestic product was 9.2% in 1999; that fell
to 9.1% in 2000 and is expected to have been 9.4% in 2001.
> In 1997, drug
costs overtook spending on physicians services. The share of total spending
accounted for by drugs grew from 8.4% in the late 1970s to 14.9% in 1999. In
2001, drug spending is expected to rank second after hospitals with a share of
15.2%.
> In 1998, for the
first time since 1983, public sector health spending grew faster than private
sector spending. Consequently, the private sector share fell from its peak in
1997 of 29.8% to 29.2% in 1999. It is expected to have decreased to 28% in 2000
and 27.4% in 2001.
> In 1999, Manitoba
and B.C. spent more per person on healthcare than any other province. Quebec,
followed by P.E.I., had the lowest expenditure per capita.
> In 1999, people
aged 65 and over, who comprised 12.4% of the population, accounted for over 48%
of provincial/territorial government hospital expenditures in Canada; children
under one year old accounted for 5% and comprised 1% of the population.
Source: Canadian Institute of Health
Information |
Volatility
 "Here's your coffee, boys." |
|
Illustrated by
David Brown |
E-POLL
Is consolidation good for Canada's group
insurance marketplace?
Market
consolidation
Fifty-five per cent say
consolidation is not
good for Canada's
group insurance
marketplace, while 30%
say it
is.
When Sun Life Financial Services of Canada Inc. made a friendly takeover bid
for Clarica Life Insurance Co. late last year, the pension and benefits industry
raised concerns over competition. With fewer players, some said, customers could
suffer. In this month's E-poll, 55% of respondents said consolidation isn't good
for Canada's group insurance marketplace, 15% said it was too soon to tell, but
30% said consolidation is good.
"I'd rather have fewer players that are more financially secure that offer a
wider range of services," says John Clarke, treasurer at Syncrude Canada in Fort
McMurray, Alta.
Clarke says he doesn't believe fewer players means less competition and
higher prices. He believes there are enough remaining players that won't ignore
services clients expect. Besides, he says, "I expect there's going to be more
(consolidation), not less. I don't think it matters what we think. The
marketplace out there is going to decide how many can survive."
Curt Van Parys, superintendent of business and finance for the Regina
Catholic Schools in Saskatchewan, also says consolidation is good for the
industry. The only way companies in Canada can compete globally, he says, "is by
getting bigger." Van Parys believes consolidation will also improve the players'
long-term viability. "If they're not going to consolidate, I think in the long
term that's probably not going to serve us well."
On the other hand, Elaine Noel-Bentley, senior
director of total compensation for Petro- Canada, says consolidation is not a
"black and white" issue. It will make the remaining players stronger, but "(the
industry) becomes less and less competitive." While she says there is value in
consolidation, "if there's too narrow a range of choices then there won't be
opportunities for organizations to get different kinds of service."
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News
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