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The rules used by plan administrators and actuaries when calculating commuted values (CVs) for defined benefit pension portability benefits are about to change. That will lead to lower CVs to better reflect the theoretical value of a pension and result in immediately decreasing the solvency liabilities of practically every pension plan in Canada, according to a Watson Wyatt’s InfoFlash Canada.

The current Standard of Practice for Calculating Pension Commuted Values (CV Standard) has been in effect since Feb. 1, 2005. The CV Standard was originally scheduled to expire on Feb. 1, 2008, but was extended to Feb. 1, 2009 by the Actuarial Standards Board (ASB). This extension was granted pending its review of a report, released in March 2008, by the Canadian Institute of Actuaries (CIA) Task Force on Pension Value Consistency.

In March 2008, the ASB issued a notice of intent proposing changes to the CV Standard (although no specific details were provided) and invited comments on the proposal. At the June 19, 2008 CIA General Meeting, and following input from key advisors and stakeholders, the ASB announced its proposed new CV Standard.

The proposed use of lower mortality rates is consistent with trends towards longer life expectancy. The proposed use of a higher discount rate reflects the fact that the deferred pension being commuted is highly illiquid. Therefore, it is important to base the discount rate on yield underlying financial instruments that have a similar level of illiquidity.

The ASB expressed a preferred effective date of Feb. 1, 2009 for the new CV Standard, as this will eliminate the need to further extend the application of the current CV Standard. However, finalizing the changes for this date is contingent on the ASB reaching a decision on the contents of the new CV Standard in October 2008, following a two-month window in which submitted comments are encouraged. Whether this is possible will depend on the extent of stakeholder agreement with its content.

Watson Wyatt says the changes “will generally lead to a decrease in commuted values across all ages and pension plan types. This decrease could be as high as 15 to 20% for younger members terminating from a non-indexed pension plan, if the 50 bps discount rate increase is adopted for non-indexed plans. The decreases would be even larger for members terminating from fully- or partially-indexed plans.”

Pension regulations must be amended in Ontario, Quebec and New Brunswick to implement these changes. As all other jurisdictions currently have regulatory language that automatically incorporates amendments to the standards, no amendments will be required in those jurisdictions.

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Getting Involved in Employees’ Health

Employers need to embrace wellness and prevention programs in the workplace to keep costs down, according to the president of Sun Life Financial Canada.

“In the past, employers have paid limited attention to these types of programs,” said Dean Connor in a speech to the Vancouver Board of Trade earlier this week. “But increasingly, companies are realizing that keeping more employees in the low-risk category through wellness and prevention is a smart way to avoid larger pay-outs later on.”

And with a greater number of older workers in the workplace, employers will have a greater incentive to do this, and to do it well.

“However, for companies to benefit from wellness programs, they need to put a program in place that will meet the needs of their organization,” he added. “This means conducting a needs assessment to ensure they are reaching the people who are most at risk, and measuring outcomes.”

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Maple Bond Sales Drop

Demand for Maple bonds plunged in the first half of the year as the credit crunch kept investors away from foreign debt, according to Bloomberg.

During the first half of the year, $500 million worth of Maple bonds, which is foreign debt denominated in Canadian dollars, was issued compared to $20.6 billion in the first half of 2007.

Instead, investors bought closer to home. Bond sales by Canadian governments jumped 19% to $40.5 billion in the first six months of the year while corporate bond sales increased 1.4% to $45.3 billion.

The Maple bond market had been growing steadily. In 2007, sales rose to $25.5 billion from $20.9 billion in the previous year and $9.1 billion in 2005.

For more information on Maple bonds, click here to read Maples Are Growing from the May 2007 issue of Benefits Canada.

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Russell Updates Global Index

Russell Investments has restocked the Russell Global Index with 1,242 newly added companies from 62 countries, including Canada.

The United States ranked on top with 279 additions. The other top 10 countries were: India (with 93 additions), Canada (89), Taiwan (89), Australia (51), China (43), United Kingdom (41), South Korea (36) Russia (34) and Brazil (32).

The list also extends the reach of the index to include companies from five emerging markets for the first time: Kazakhstan, Qatar, Tunisia, Ukraine and Vietnam.

“The annual reconstitution process is an essential part of providing truly representative equity benchmarks for investors,” says Stephen Wood, senior portfolio strategist for Russell. “This is important for investors who want to better gauge the performance of their stock portfolios or retirement plans.”

The Russell Global Index covers 98% of the investable global market and includes more than 10,000 securities in 70 countries.

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Goldman Chooses Toronto

Goldman Sachs has chosen Toronto to grow and diversify its hedge fund administration business.

The brokerage has opened its newest Goldman Sachs Administration Services (GSAS) office in Toronto with fund accounting and investor servicing areas of its hedge fund administration operations.

GSAS will begin operations with a full staff complement and intends to grow its business and Ontario personnel over the next five years.

“We are pleased to establish our hedge fund administration presence in Toronto to supplement our global platform and expand the Goldman Sachs footprint in Canada,” says Grant Jackson of GSAS. “We believe the talent pool in this region will enhance our efforts to provide the best service possible to the global hedge fund community.”

Ranked in the top five worldwide among hedge fund administrators for single manager hedge funds, GSAS’s assets under administration total approximately US$225 billion.

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Caisse Sells BAC Trust Units

The Caisse de dépôt et placement du Québec has sold nearly 1.9 million class A units of BAC Trust.

“This transaction was made for investment purposes,” says a statement from the Caisse.

It sold the units at a price of $7.41 per unit, representing 49.99% of the class A units issued by BAC Trust, formerly known as Barclays Corporate Bond Fund.

Following this transaction, the Caisse no longer holds any class A units.

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

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