Top five pension and benefits developments of 2013

1| In January, the Mental Health Commission of Canada issued voluntary workplace mental health guidelines, Psychological Health and Safety in the Workplace. The new national standard is applicable to organizations of all sizes. Its goal is to reduce the stigma associated with mental health problems and ensure the introduction of practices that support employees who struggle with mental health issues.

2| In May, Alberta became the last province to introduce compassionate care leave, which allows employees to take an unpaid leave of up to eight weeks to care for terminally ill family members. When the leave is over, the company is obliged to offer the employee his or her original position or a comparable one, with no loss in wages or benefits.

3| In July, the Canadian Institute of Actuaries released updated mortality tables to reflect Canada’s longer lifespans. The life expectancy of a 60-year-old male today has increased by 2.9 years—from 24.4 to 27.3 years—compared to the mortality tables currently in use. The life expectancy of a 60-year-old woman has increased by 2.7 years, from 26.7 to 29.4 years. Increased longevity poses a risk for DB plans, which will need to cover more retirees for longer periods of time, as well as for DC plans, whose members could end up with insufficient savings.

4| In December, Quebec passed Bill 39, which creates voluntary retirement savings plans (VRSPs) in the province. (VRSPs are Quebec’s equivalent of the federally endorsed pooled registered pension plans.) The introduction of VRSPs affects mainly small- and medium-size employers, since the new law requires companies with five or more employees to offer a workplace retirement savings plan to those with at least one year of continuous employment. Small and mid-size employers would be able to band together to form low-cost pension plans administered by an insurance carrier, a trust company or an investment fund manager. The new law comes into force July 1, 2014.

Throughout the year, the Canada Pension Plan (CPP) expansion debate raged on. Canada’s finance ministers met in December but were unable to come to an agreement regarding an enhancement to the CPP. Supporters argue that it’s the only way to provide retirement income security for all Canadians, but critics counter that employers and individuals cannot afford the increased CPP contributions.

Hiring stays steady

Canadian companies expect a steady hiring climate during the first quarter of 2014, with low-paying sectors anticipating the strongest prospects, according to a recent survey.

The Manpower Employment Outlook Survey reveals that 13% of respondents plan to increase their payroll in the first quarter, while 8% project cutbacks. Seventy-eight percent of surveyed employers expect to maintain their current staffing levels, and 1% are unsure of their hiring intentions for the first quarter.

The figures also show that, although job creation will likely continue at a steady pace, many of the gains are expected to occur in lower-paying sectors. Employers in the construction industry anticipate the strongest payroll gains, with most new jobs in the sector expected in Western Canada and Ontario.

More than 1,900 employers across Canada participated in the poll.

CPP to remain sustainable

The Canada Pension Plan (CPP) is forecast to meet its obligations and remain financially sustainable over the long term—despite the fact that the benefits paid will increase as a result of an aging population—according to a recent report.

The 26th Actuarial Report on the Canada Pension Plan reveals that, with the legislated contribution rate of 9.9%, contributions are projected to be more than enough to cover the expenditures during the period between 2013 and 2022.

“Thereafter, a proportion of investment income is required to make up the difference between contributions and expenditures,” the report notes. “In 2050, 27% of investment income is required to pay for expenditures.”

The report also shows that the plan’s total assets are expected to grow to $300 billion by the end of 2020 (from $175 billion at the end of 2012); the number of contributors is expected to grow to 14.5 million by 2020 (from 13.5 million in 2013); contributions are expected to increase to $56 billion in 2020 (from $42 billion in 2013); and the number of retirement beneficiaries is expected to increase to 10.2 million in 2050 (from 4.6 million in 2013).

Your Say | Investments

Q: From a pension fund’s perspective, what are the risks involved with investing in hedge funds? What are the possible benefits?

A: It is important that a pension fund that is going to use hedge funds does so with its eyes wide open. Some of the key risks are liquidity, higher fees, complexity and a lack of transparency, which could result in a misunderstanding of a fund strategy, potentially creating an unexpected outcome. Furthermore, certain funds focus on executing against a single strategy—such as event-driven or long/short—which can also lead to increased return volatility. Successful hedge fund investing requires careful portfolio construction to get appropriate diversification of risk and strategies within the hedge fund portfolio and/or within the context of the total plan. As far as benefits are concerned, hedge funds are generally considered to be a liquid alternative strategy with a focus on providing absolute returns rather than benchmark returns. They add diversity to the investment portfolio with strategies that are quite different from traditional equity or bond strategies. Hedge fund managers are typically following a focused, high-conviction strategy. By having a portfolio of hedge funds with different high-conviction strategies, it is possible to add exposure to a variety of strategies—such as merger arbitrage [a strategy that involves making a profit from the difference between the market price and the deal price for a target company in a merger], currency or event-driven—and therefore pick up returns that have less correlation to traditional equity or debt markets.

— Ian Struthers, partner and investment practice director, Aon Hewitt

Meet an Advisory Board Member: Sarah Beech, president, Pal Benefits, Inc.

What attracted you to a career in employee benefits?

I actually started in the benefits industry by chance versus design. I was offered a good job out of university as an underwriter with a major Canadian company. I have stayed in the business because I am able to solve problems, understand many different industries, and meet and work with great people. And I continue to learn every day.

From your perspective, what is the biggest challenge facing the group benefits industry today?

I believe our challenge is to work collaboratively as an industry to help plan sponsors provide sustainable benefits plans that employees value for the long term.

What’s your New Year’s resolution?

As an industry supporter of health and wellness, I am going to focus on my own increased fitness regimen (and stick to it!).

Market Watch

MSCI has launched MSCI Multi-Factor Indexes to give institutional investors a basis for the passive implementation of index-linked, multi-factor strategies in a transparent and cost-effective manner. The indexes are available in standard combinations provided by MSCI or as a custom mix created by the client. Both approaches can be based on underlying flagship indexes such as MSCI EAFE, MSCI ACWI, MSCI World and MSCI Emerging Markets.

The Financial Consumer Agency of Canada has created the Financial Goal Calculator, a new tool to help Canadians plan and reach their financial goals. The free interactive online calculator helps people meet their financial goals in three areas: getting out of debt, saving for retirement and saving for other financial plans. After users answer questions and enter their own financial data, the tool helps them to create a realistic plan that they can follow.

Telus Health has introduced a new claims transmission website for select healthcare providers. Telus Health’s eClaims web portal allows physicians to file claims online on behalf of their patients. Patients can pay only the portion of the claim not covered by their insurance, instead of paying the entire amount upfront and filing paperwork for a refund. Several of Canada’s insurance companies are connected to the platform so that their clients can use the service.

The Month in Numbers

$66.4 billion: the total amount that Canada’s life and health insurance carriers pay out in benefits annually — Canadian Life and Health Insurance Association

80% of Canadians who divorce at age 50 or later plan to delay their retirement because they need to work longer than expected — 2013 Investors Group survey

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