What political/legal developments will be most influential to Canada’s pension and benefits landscape in 2013? We asked three forward-thinking industry experts. They pointed to changes in pharmaceutical regulations, emerging risks and upcoming elections as issues that plan directors should watch.
Mike Sullivan, president, Cubic Health
“In July 2012, Canada’s premiers announced their intent to introduce a tender process for key generic drugs enabling provinces to bulk buy, thereby lowering generic drug prices. The target date is April 1, 2013. This development could well push continued downward pressure on generic prices and encourage more plans to adopt designs that drive higher levels of generic drug utilization.
“But a lack of provisions to penalize manufacturers for back orders put our drug supply at risk. Drug shortages in 2012 arising from production issues at Sandoz Canada’s Quebec manufacturing facility demonstrated the risk of single-source manufacturers of key products. Improperly executed tenders could lead to more drug shortages, which could disrupt private plans across Canada.”
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Paul Litner, partner, Osler, Hoskin & Harcourt LLP
“In the past, governments have responded to underfunded DB plans by amending legislation to provide forms of solvency relief (e.g., permitting letters of credit, temporarily extending amortization periods). We expect that DB sponsors in 2013 will seek relief through de-risking solutions, some of which may require further legislative amendments.
“Some plan sponsors mitigate risk through investment strategies such as liability driven investing. Others pursue conversion to DC, target benefit and jointly sponsored pension plans. There are also options that involve eliminating plan liability risks through commuted value transfers or buyout or buy-in annuities. Legal challenges in implementing these strategies will likely influence the pension landscape in 2013.”
Ian Markham, Canadian retirement innovation leader, Towers Watson
“The U.S. fiscal cliff crisis and Eurozone developments will influence both investment markets and interest rates significantly, thereby affecting DB pension plan funded ratios, the pace of DB pension plan de-risking and DC pension plan replacement ratios.
“Also, probable elections in B.C. and Ontario will renew debate around the best resolution—pooled retirement pension plans or CPP changes—to the problem of pension coverage in Canada.
“An increasing number of provincial governments will promote target benefit plans and, in particular, the transitional rules from traditional plans. And the realization that responsibility for financial literacy belongs equally to governments, employers (whether plan sponsors or not) and unions will continue to build.”