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A decade from now, American corporate pension plans will achieve higher funding levels and will pursue investment policies that accept far less risk, according to new research from Russell Investments forecasting the future for defined benefit plans.

The firm expects only one plan in every four will have funding status below 90% and that the number of plans with significant shortfalls will be greatly reduced. As part of this developing trend, Russell is forecasting that corporate contributions to pension plans will become more sensitive to investment returns.

“The dynamics of corporate pension plans in the United States have been dramatically transformed by the Pension Protection Act of 2006 and other recent changes, and we are expecting a tremendous evolution over the next decade,” says Michael Hall, Russell’s director of investment policy & strategy. “Traditionally, pension plans have accepted a great deal of interest rate risk and taken significant market risk, but we expect the extent of the risk taken in each of these areas to decline.”

The new research from Russell identifies four major trends anticipated for corporate pension plans:

• Relatively few plans will find themselves significantly underfunded;

• Variations in plan experience will be felt more in contribution volatility rather than in funded status volatility;

• Plan sponsors will influence their plan through benefits policy, contribution policy and investment policy with the role of contributions becoming far more significant; and

• Pension plans will, in general, accept less risk than they do today and the balance of the risks they take will be different.

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CBA, FEI Canada Call for Single Securities Regulator

In submissions to the Expert Panel on Securities Regulation, the Canadian Bankers Association (CBA) and Financial Executives International Canada (FEI Canada) both called for the federal government to create a single national securities regulator.

“A single Canadian Securities Commission that would enhance efficiency, increase confidence in the markets and allow regulators to respond more quickly to market events would improve the productivity of the Canadian economy and our international competitiveness as a result,” says Nancy Hughes Anthony, the CBA’s president and CEO.

According to data from the International Monetary Fund, if Canada were regulated and viewed internationally as a single market, it would rank after the United States, the United Kingdom, Japan, France and China. But broken down as individual provinces, which is what our current regulatory system does, Ontario’s market is smaller than Italy, Alberta’s is smaller than the Netherlands, Quebec’s is comparable in size to Denmark and British Columbia. is the equivalent to that of Ireland.

A critical component of FEI Canada’s recommendation to enhance the efficiency of securities regulation is that any system of securities regulation adopts a principles-based approach rather than be rules-based.

“A regulatory framework founded on high-level principles better addresses the ongoing changes in Canada’s financial marketplace,” says Michael Conway, chief executive and national president of FEI Canada.

Focusing on regulatory enforcement, FEI Canada stressed the need for consistency and predictability, noting that a principles-based regulation provides the best means of determining whether a reporting issuer’s disclosures present a true and fair view of its financial condition.

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Asset Allocations Overhauled

A survey finds that money managers are offering the clearest signal yet that the global economic slowdown is forcing them to overhaul their asset allocation.

Merrill Lynch’s Survey of Fund Managers for July reveals that the credit crunch is leading to polarized asset allocations and is taking survey readings into uncharted territory, setting four records: net 53% of asset allocators are overweight cash, 40% are underweight equities, 32% are underweight eurozone equities, and 40% are underweight U.K. equities.

Risk appetite is close to record lows last seen in March. However, despite the sell-off in equities, only a net 16% of respondents find equities cheap.

Furthermore, the survey demonstrates that investors have an increasingly skeptical view of earnings forecasts. A net 83% of managers polled believe in consensus corporate earnings are “too high.” Of that figure, a net 29% believe they are “far too high.”

A total of 191 fund managers participated in the global survey, managing a total of US$610 billion while a total of 169 managers participated in the regional surveys, managing US$394 billion.

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Aon Signs Up

Aon Consulting has become a signatory to the United Nations Principles for Responsible Investment (PRI).

The PRI is designed to help investors consider the environmental, social and governance (ESG) issues in investment decision-making and ownership practices, thereby improving the long-term returns to beneficiaries.

Becoming a signatory formalizes Aon’s Investment Consulting group’s use of the PRI framework in determining investment risks in a company, security, or mutual fund on behalf of clients worldwide.

“There is increasing evidence that ESG issues can be material to the long-term performance of portfolios,” says Angie Parrish, Aon Investment Consulting practice leader. “By becoming a signatory, Aon’s Investment Consulting group reaffirms our commitment to client demands for sound, long-term investment returns that appropriately value the risks and opportunities of ESG factors.”

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Teachers’ Promotes Seven

The Ontario Teachers’ Pension Plan has announced the promotions of seven executives in the investment division.

The appointments include: Stephen Dowd, senior vice-president, infrastructure; Ron Mock, senior vice-president, alternative investments; Jason Chang, vice-president, fixed income capital management; Kevin Kerr, vice-president, infrastructure; and Andrew Claerhout, Shael Dolman and Glen Silvestri to vice-president, Teachers’ Private Capital.

“These appointments reflect Teachers’ tradition of cultivating its talent internally and promoting from within,” says Neil Petroff, group senior vice-president, investments. “As a long-term investor, we are focused on fostering the strength of the fund into the future. The breadth of experience they each bring to their roles will enable us to continue to build on Teachers’ innovative approach to investment management.”

He adds that Teachers’ produced $2.3 billion in value added above the fund’s benchmark in 2007 and more than $5 billion over the benchmark in the last two years.

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Benefits Management for Smaller Employers

Mercer has introduced a new suite of employee benefits insurance management offerings for small- to mid-sized employers in the United States.

Called Enterprise Momentum, it’s focused on creating near- and long-term benefit program strategies that help attract and retain qualified talent. It also provides clients with benefits-related regulatory support and updates.

The offering includes a number of brokerage/consulting services, including carrier services audits, cost forecasting software, benefit communications, a consumerism readiness audit, a benchmark profiling program, online renewal and placement support, and a dedicated local service team.

“Enterprise Momentum leverages the resources, experience and purchasing power of Mercer to bring employers the most convenient, cost-effective, competitive and integrated insurance offerings available—all tailored to the needs of small- to mid-sized businesses,” says Joe O’Connell, principal and New York enterprise business leader. “And all of this is done with our clients’ full knowledge of all compensation to assure that we deliver value.”

Enterprise Momentum is being launched in major U.S. cities over the next few months. Mercer says a number of other markets globally are under review for expansion, including Canada.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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