As the new year begins, what are the key benefits, pension and investment issues facing plan sponsors in the coming months?
For those providing benefits, drug costs are expected to continue to increase at about five to seven per cent annually, says Stephen Frank, senior vice-president of policy at the Canadian Life and Health Insurance Association.
Also, the Patented Medicine Prices Review Board is continuing to review its guidelines. After consulting with stakeholders last year, it’s now exploring policies that could determine how often it reviews drug prices, according to Frank. “It’s a pretty exciting time. We haven’t done a review of the [board] since 1987,” he says. “So it’s been over 30 years and it’s well past due.”
Both plan sponsors and providers could benefit from recurring reviews of drug prices, notes Frank. “When a new drug comes to market, it gets its regulatory ceiling price established by PMPRB and [it] never looks at the drug again.
“One of the things they’ve talked about and we’ve certainly urged them to do is that if the conditions in the market change . . . maybe [they] need to be relooking at those price dealings and potentially adjusting them to reflect the current reality.”
The Canadian Life and Health Insurance Association is also monitoring any developments on the Liberal government’s promise to revisit the health accord, an agreement with provincial governments on health-care funding, says Frank.
He says the federal government has identified mental health and community care as two areas it wants to focus on. And with mental-health claims on the rise, the outcome of the health discussions “could be very important for the industry.”
For pension plan sponsors, decumulation of retirement savings is an ongoing concern, says Kathryn Bush, chair of the Association of Canadian Pension Management’s national policy committee. Bush notes policy-makers are starting to look at potential solutions. Plan sponsors are also taking note because they don’t want to face fiduciary liabilities, she adds.
While the issue is a developing one in Canada, “there are things that other countries have done that our policy-makers are now looking at,” says Bush. For example, in Australia, many superannuation plans are still open to members who have retired and transfers of longevity risk have been an option in Britain’s pension industry for years.
Deferred annuitization, which only lets retirees access income after a certain age, is another potential solution, notes Bush. “We’re seeing a lot more activity on the [annuity] front,” she says, adding that several providers have noticed more demand for those products and are looking at what they can offer.
Recent litigation around defined contribution pension plans in the United States also offer insight for Canadian plan sponsors, says Bush. “We’ve seen cases where they say you, as a plan sponsor, didn’t get the best fees or that you haven’t done the right thing by [the employees] when you communicated this,” says Bush, noting that while most plan sponsors already have good governance practices for their pension plans, they should be extra cautious when communicating the potential outcomes to employees.
“That’s where I think [plan sponsors] are at risk,” says Bush. “Don’t oversell what your pension can or cannot do. You have to be honest with people about how much they have to put away.”
This year will also see developments on several changes introduced last year, including the Canada Pension Plan enhancements, says Bush, noting plan sponsors will likely start to take steps to amend their pension plans to integrate the changes.
There have also been discussions on the federal government’s move to allow federally regulated employers to convert defined benefit plans to target-benefit plans, Bush adds. “A lot of us weren’t sure how interested plan sponsors would be, but there’s been more interest than expected.”
On the investment side, plan sponsors that provide defined contribution pensions will be able to offer more hedge-fund strategies within the mutual funds they offer to members, according to James Burron, chief operating officer at the Alternative Investment Management Association Canada.
“What’s happening . . . is we have the retailization of hedge funds,” says Burron. “You will be able to have prospectus-based . . . mutual funds that can use hedge strategies.”
While alternative investments are already available to defined contribution plan members, Burron says the latest change will provide individual investors with more access to strategies that were typically exclusive to investors with large pools of capital.
“If you have a balanced fund alternative, you can have, instead of just stocks and bonds, . . . stocks and bonds and alternatives,” says Burron. “Regular mutual funds can put up to 10 per cent of their [assets under management] in an alternative fund . . . which will help out the returns, performance and everything going forward.”