The coronavirus pandemic is fundamentally changing the future of work and, very likely, the nature of employer-sponsored benefits and pension plans.
Looking to the end of the crisis, Canadian consultants see an array of major changes on the horizon, from more flexible benefits plans and mental-health care to an outsourcing of pension administration and the reduction of investment risk.
“This is a huge change,” says David Boyce, group benefits distribution manager at ABC Insurance Solutions Inc. “It makes what we do more important.”
As employers look at their benefits plans after the pandemic, they’ll be focusing on one key question: what provides the greatest value? “I know that’s a huge topic, but everyone’s thinking, what is truly important for employees? Is it vision care, psychologists, virtual care?” says George Wang, consulting actuary at Westcoast Actuaries Inc. “Employers will take their time to really re-think, ‘Where do I want to spend my money? What is most important?’”
For employers hard hit by the economic impacts of the pandemic-related shutdown measures, he notes that renewed focus may be coming from a financial perspective.‹
But regardless of the factors driving a closer look at offerings, consultants agree mental-health supports — which are already important to employers — will be a critical component of post-pandemic benefits plans. In the first half of 2020, numerous surveys found the coronavirus was having a negative impact on people’s mental health, due to factors including social isolation, concern for loved ones, fear of contracting the virus and financial worries.
Indeed, the effects of the pandemic have highlighted the importance of employee mental-health care, says Troy Paulence, chief financial officer at family-run car dealership chain Kaizen Automotive Group, noting the company is looking to introduce an employee assistance program.
“Especially in COVID-19 times, where a lot of our employees are now working from home and isolated — you can do Zoom meetings and group gatherings like that, but it’s just not the same. I think, post-pandemic, the mental stress is going to [push demand for mental-health care] through the roof. . . . I think that an EAP, going forward, is going to be much more important.”
EAPs, which have traditionally been an under-used part of most benefits plans, could start to see pickup, says Boyce. He estimates about 60 per cent of his employer clients offer EAPs and says his firm is working to communicate their value to both employers and their employees.
Even as employers ramp up mental-health supports, Lizann Reitmeier, health practice leader at Buck, expects a “tsunami” of disability claims relating to mental health coming out of the pandemic. “There are too many changes in our lives right now and it’s going to undermine people’s mental states. Returning to work is going to put people who are feeling vulnerable into a precarious situation.”
Up-to-date absence management policies will be essential, she says, as will competent short-term disability managers who can be proactive in getting at-risk employees quick access to pharmacogenetic testing and a mental-health professional.
Benefits go virtual
Virtual health care proved its mettle during the pandemic, as several major insurers partnered with providers such as Dialogue, MindBeacon Group and Teladoc Health to add virtual care to their group benefits offerings if it wasn’t already in place. Employers ranging from the Vancouver City Savings Credit Union to Walmart Canada rushed to make virtual care available to their staff.
These platforms are here to stay, says Boyce, but he expects to see them expand beyond the realm of mental health and routine medical care. “The way services are being delivered is going to change significantly. People think it’s going to return to normal and it’s not.”
He points to the efficacy of virtual physiotherapy and chiropractic care during the pandemic. “We’ve talked to some clients [about whether] it does provide a benefit and they definitely feel it does.”
As well, virtual offerings can be part of an employer’s wellness program, says Karen DeBortoli, Buck’s knowledge research centre leader. “Maybe you’re not able to get a massage, but perhaps you have the availability of a wellness program that includes meditation or yoga offered virtually — it doesn’t replace the massage, but it addresses the underlying causes.”
Employers may also consider reimbursing fitness and wellness apps where they’d previously covered the cost of gym memberships or classes, she says, which could save money while achieving the same goals. “At some point in the future, the gym will reopen, but the desire to go to an open gym will depend on a lot of things. . . . Even when gyms are open, this may be, for some individuals more than others, how they want to spend their time.”
Meeting varied needs
While lockdown measures were in effect, employees couldn’t make full use of some of their benefits, with dental offices, massage therapists, acupuncturists and other health-care providers closed to the public. Wang speculates that time away could reverse the years-long trend of increased paramedical spending. “In a COVID-19 situation, we don’t go to our massage anymore, we don’t go to our chiropractor and all that. All of a sudden, people might realize that’s optional. I used it because I had it, but do I really need it?”
Reitmeier agrees, noting she hopes the pandemic will give employers an appreciation for the importance of flexibility in their benefits offerings. “We’re all going to look at the world differently now. I think employees will . . . look at their benefits plan differently and come out of this going, ‘That was months I couldn’t get my massage or use my benefits plan — is it a benefit if I couldn’t use it? And there are other things I could’ve used that I couldn’t get.’ Parents working from home, they may have traded all of their benefits for a tutor. Everyone has different needs and I hope we come out of this recognizing the variety of needs and the limited scope of the benefits plans that we provide.”
She expects to see the benefits plan move toward accommodating employees’ specific needs, such as childcare or elder care and other more personalized services. “It’s about having a quality of life that supports you at work and . . . benefits that make your life easier.”
While larger employers with administrative-services only plans have always had more options for customization, Reitmeier acknowledges that smaller employers are a bit more limited. “If you’re in a fully insured plan, if you’re a smaller employer — and much of Canada is small employers — there’s limited choice available to them and not a lot they can do in their plans. It’s important they be able to find a partner that understands what they need.”
Offloading investment risk
Pension consultants say they hope plan sponsors come away from the pandemic with an understanding that the worst-case scenario is possible and they need to be prepared for it.
“The main lesson to be learned, which I’d say some plans have embraced and maybe others not so much over the years, is [to] be conservative,” says Brendan George, partner at George and Bell Consulting Inc. “Make sure your funding is conservative, your investments are conservative, make sure you have a reserve or contingency fund set aside [and] don’t run everything on the margins and on the edge.”
Prior to the crisis, many pension plans were in strong funding positions but were still taking a lot of investment risk, says Manuel Monteiro, partner and leader of Mercer Canada’s financial strategy group. “Did it actually make sense to take that level of risk when they were well-funded?”
He expects to see more plan sponsors implementing journey plans that would reduce their investment risk as their funded statuses increase. “We’ve been preaching for many years that there should be journey plans in place and, having gone through a crisis again, plan sponsors can see the wisdom [in that].”
The crisis could also lead to long-term changes in pension funds’ asset allocations, says George, including significantly less exposure to public equity, the use of fixed income as a source of liquidity rather than a long-term investment strategy and a move into private assets including infrastructure, real estate, private equity and debt.
His firm developed two model portfolios for pension plans that have less exposure to public equity and fixed income and more emphasis on illiquid and private assets. “A lot of clients are hesitant to go down that road . . . and pension funds do need some liquidity. But even in a crisis, if you’ve done a proper study of your five-year projections of future cash flows and scenarios of benefits and contributions, you’re able to determine what level of liquidity you need and what level of illiquid assets to invest in.”
Outsourcing and de-risking
During the crisis, most chief financial officers of private sector companies have been focused on keeping their businesses running and making sure they could meet their obligations, says Monteiro, so managing their pension plans wasn’t the top priority.
“I think that will lead to the recognition that pension plans need attention and not many people [in the company are able to give it that attention,” he says, suggesting the possibility of a greater move to outsourced chief investment officers and other external parties.
Nathan LaPierre, partner in retirement solutions at Aon, says he’s already seen some employers expressing an interest in outsourcing. “We’ve seen an increased desire to look at things like OCIO. Where clients were considering it, they’re now putting it into action.”
He also speculates that the crisis could prompt DB plan sponsors to look into de-risking options such as annuity purchases, moving to a target-benefit plan or merging into a jointly sponsored pension plan.
In addition, recent legislative changes in some provinces have removed the requirement to fund solvency tests, a helpful move for plan sponsors. However, LaPierre says the crisis could prompt governments to take a second look at regulations, particularly around contribution requirements. “[Plan sponsors’] contribution requirements that will come out of this crisis will be lower than they would have been under the old rules. But they still don’t go all the way in terms of having plan sponsors contribute more in good times so they have lower contributions when they’re least able to afford [them]. Most pension legislation in Canada doesn’t do that.”
While British Columbia’s provision for adverse deviation tends to increase contributions in the good times and decrease them in the bad, other provinces in Canada don’t have similar rules. “It’s pro-cyclical,” says LaPierre. “Plan sponsors have to contribute the most when the economy is struggling the most.”
The pandemic could also mark a fundamental shift in the employer-employee relationship. Over the last few months, management-level staff have seen into the homes of their employees through webcam screens, getting glimpses of mischievous pets, giggling children, pajama-clad partners and elderly parents. The crisis has also forced more honest conversations about mental and physical well-being.
“There is this newfound camaraderie, [a] ‘we’re all in this together’ attitude, and I think now the role of an employer is broader than just you come to work, get paid, get pension and benefits and see you later,” says Jill Wagman, managing principal at Eckler Ltd.
“I’m finding a much more holistic level of caring for employees, where we’re touching base very regularly, making sure nobody falls through the cracks. We have coffee meetings and lunch meetings, town halls and a lot of discussions about taking time off and mental-health and exercise.
“That just wouldn’t have come from employers traditionally — as part of the wellness program, maybe — but I hope coming out of this there’s a more holistic overall wellness and caring approach to how we treat our employees.”
Kelsey Rolfe is an associate editor at Benefits Canada.