Three and a half million Canadian workers are being left out in the cold when it comes to retirement income, according to pension expert Keith Ambachtsheer, and he thinks he’s found a solution. In a recent report published by the C.D. Howe Institute, Ambachtsheer suggests that adequate savings could be attainable for most Canadians with the creation of a Canada Supplementary Pension Plan (CSPP).

The idea seems to be gaining traction. Claude Lamoureux, former head of the Ontario Teachers’ Pension Plan, echoed Ambachtsheer’s claim, adding that 5.5 million people are struggling with private savings due to poor returns and high fees. Lamoureux called for a national pension summit to get all the relevant parties together.

Ambachtsheer identifies the most vulnerable area of the workforce as mostly private sector middle-income employees of small- to medium-size firms with no pension plan and points out that overall participation in workplace pension plans is in decline. “Meanwhile, most of the employment growth is coming through—guess what?—medium- and smallsize firms,” he says. “So this issue is going to get bigger and bigger as time passes.”

While observers say it’s tough to find fault with a CSPP, many wonder aloud at the mutual fund industry’s reaction, with which it would likely find itself in direct competition. The Investment Funds Institute of Canada’s (IFIC) Pat Dunwoody, vice-president, member services and communications, cautiously praises the report while noting that it’s too early to predict its effect on the industry. “Certainly, this plan has been laid out in a very appealing way, and on the surface, [it] seems to have merit,” she says. “In Keith’s presentation, there were a lot of assumptions made, so we want to look at those and make sure they’re valid.”

One industry expert who prefers to remain anonymous suggests that the report might be cause for reflection for some financial advisors. “They might ask themselves, ‘If my client can do some of their retirement saving under this new plan, am I offering enough added value to make sure I keep and grow my client base?’” he says. He also points to the compromises such a plan would likely require, given the lacklustre track record of interprovincial legislative co-operation. “It’s still in its formative stages, and it will spur discussion and debate,” he says. “What I’m saying is, moving from a paper with an excellent idea to a nationwide pension scheme is a big step.”


World View

French Lessons

Nicolas Sarkozy, president of France, withdrew plans to end the 35-hour workweek, fearing backlash from unions and voters. He had called the measure (which reduced the number of working hours from 39 to 35 with no loss of pay) an “economic catastrophe.” His mantra since last year’s election has been “work more to earn more.” Still, Sarkozy refused to back down from his plan to require employees to work for 41 years instead of 40 to qualify for a full state pension.

Sin Back In?

Investing in “sin” stocks may not be in vogue, but the California State Teachers’ Retirement System (CalSTRS) is reconsidering a move back into tobacco. Eight years ago, the second-largest pension fund in the United States sold its US$238 million worth of tobacco equities because there was a significant threat of industry-wide bankruptcies. However, CalST RS missed out on some big gains. Since the end of 2000, an index of tobacco firms has jumped nearly 300%, while the S&P 500 has gained 21%.

Workers Save Past Retirement Age

More workers in the United Kingdom are saving money despite the fact that they qualify for a government pension, according to the Department for Work and Pensions. Among male employees over the age of 65, the proportion saving in a pension rose to 21% in 2006/07 from 6% in 2005/06. Forty-four percent of female employees between the ages of 60 and 64 were saving in a pension, up from 35%. And for those over the age of 65, the proportion of women saving in a pension rose to 15% in 2006/07, compared to 5% in 2005/06. The state pension age in the U.K. is currently 65 for men and 60 for women.


Y’s Benefits

Born between 1977 and 1994, generation Y is gaining visibility in the workforce, and employers will have to address what kind of benefits plans will be suitable.

Unfortunately, the health picture for many gen Ys isn’t rosy. In 2004, 29% of 12- to 17-year-olds were considered overweight or obese, compared to only 14% in 1978, according to Statistics Canada. And, according to the 2005 Canadian Community Health Survey, roughly 15% of youth ages 12 to 19 suffer from at least one chronic disease such as diabetes, cancer, mental illness, and bone and joint disorders. The Canadian Institute for Health Information reports that overall drug spending in Canada was $27 billion in 2007. If these statistics are any indication, drug spending and usage can only be expected to increase.

Just what drugs are gen Ys using? Green Shield Canada investigated drug utilization of 16- to 25-year-old dependents of its clients’ plan members. After oral contraceptives, the most used drug type was antidepressants. In fact, 25% of all drugs used by this group are antidepressants, says Karen Kesteris, director of marketing and product development, with Green Shield Canada. Proton pump inhibitors (for gastric acid ailments) was No. 4, and insulin and diabetic supplies was No. 9.

But even if the numbers remain constant or decrease, employers will still need to take a different approach to their benefits plans to accommodate this latest generation. In terms of plan design, gen Ys will most likely want some kind of health care spending account (HCSA) in addition to a basic dental and medical plan, says Kesteris. “They don’t want to pay for what they’re not going to use.” And while baby boomers and generation X will continue to work full time, this may not be the case for generation Y. “A lot of them think they’ll hold three parttime jobs,” says Kesteris. As a result, she says, plan sponsors may want to consider implementing benefits for part-time workers.

No matter what the composition of the benefits plan, online access is key for this technologically savvy generation that grew up with the Internet. Plan sponsors will want to ensure that benefits information is available online, accessible 24/7. If an employee has a question about the benefits plan at 3 a.m., he or she had better be able to get the answer then, says Kesteris.

Preventive and proactive measures may help contain employers’ benefits costs. Green Shield, for example, offers wellness/preventive programs that employers can provide to their plan members. Kesteris says employers can also implement a wellness/preventive program for dependents. However, plan sponsors aren’t showing a lot of interest in this idea—at least, not for the time being. “It’s hard to sell plan sponsors on well-being [initiatives] for dependents.” — Brooke Smith



Falling Short

Despite the commitment to build real and lasting change initiated by the 2003 Accord on Health Care Renewal, progress falls short of what could—and should—have been achieved by this time, according to the Health Council of Canada’s Rekindling Reform: Health Care Renewal in Canada, 2003 to 2008 report. It says action has been slow in many areas. “Progress on catastrophic drug coverage has stalled,” the report states. “Meanwhile, the current patchwork of government drug plans leaves millions of Canadians with little or no protection against financial hardship due to the cost of needed medicines.” Still, the report finds that the 2003 accord has been a catalyst for change in some areas, as some Canadians have better access to publicly insured prescription drugs.


The Association of Canadian Pension Management plans to seek permission to intervene in the Kerry case because it says the issues raised in the appeal are of significant importance to occupational pension plans across the country. The Supreme Court of Canada is scheduled to hear an appeal in the case in November. Last year, the Ontario Court of Appeal concluded that plan expenses could be paid from the pension fund in the absence of an explicit prohibition in the plan documents preventing such payment and also condoned contribution holidays taken in respect of a defined benefit/defined contribution arrangement.

Bidding Adieu

Henri-Paul Rousseau, president and chief executive officer (CEO ) of the Caisse de dépôt et placement du Québec, has stepped down for a private sector job. He will serve as an executive advisor until the end of August. Rousseau will join Power Corporation and Power Financial next year, and will become vice-chair of both companies. Chief investment officer Richard Guay will assume Rousseau’s responsibilities on an interim basis until a new president and CEO is found.


Talking About my Generation

Attracting, retaining and meeting the diverse needs of multigenerational employees is a challenge. According to Monster, Canada, almost 90% of Canadian workplaces today employ up to four generations of workers. And, almost half of Canadians who work in a multi-generational environment report experiencing a “clash” with older or younger co-workers. Gen Ys, Xers, boomers and traditionalists, then, could be coming together or coming to blows.

To address these issues, workforce planning is key, says Sanjiv Kumar, managing director, human capital management, at Buck Consultants. Planning is critical to observe changing demographics to prepare for the future, reduce unnecessary costs and change, make workforce transitions and design effective HR programs. It involves tracking and reporting, analytics and figuring out where the gaps are, he adds. “How many employees do I need? What kind? How soon? What’s the cost?”

Employers should also focus on all five components of the total rewards strategy: compensation, benefits, career opportunities, work environment and culture. “Take each one of these,” Kumar says, “and customize and adopt it for the generations while still maintaining standards across the organization.” — Brooke Smith


Off Target

Target date funds (TDFs) are designed to automatically shift investors’ portfolios to less risky assets as they age, but some funds in the U.S. have higher risk levels than others, according to an analysis by Watson Wyatt.

Using Morningstar Direct research, the company discovered that some funds for employees expecting to retire in 2010 still have almost 70% of assets in equities. Watson Wyatt’s own analysis of TDFs two years ago also found some variations between funds. For example, allocations to equities for employees 10 years from retirement varied from 40% to 80% among TDFs. And the equity allocation for employees on their retirement day ranged from 20% to 65%.

“The lack of consistent philosophies in this area means that products with very similar names can have very different compositions,” says Robyn Credico, national director of Watson Wyatt’s defined contribution practice. “If the funds are not appropriately matched with employees’ needs, employers could see many workers delay their retirements.” — Craig Sebastiano


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© Copyright 2008 Rogers Publishing Ltd. This article first appeared in the July 2008 edition of BENEFITS CANADA magazine.