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Although the financial health of Canadian pension plans increased slightly in the second quarter, it was still lower than at the start of the year, according to the Mercer Pension Health Index.

The index recovered to 79% at the end of June, up from its previous low of 77%. However, it is still lower than its value of 82% at the end of 2007.

“Positive Canadian equity and bond performance in the first half of the year was offset by the poor performance of foreign equity markets,” says Peter Muldowney, business leader for Mercer’s investment consulting business in Canada. “The asset side of the Canadian pension plan balance sheets remained broadly unchanged since the start of the year.”

A typical balanced portfolio of investments would have returned -0.1% for the first half of 2008, and 0.9% for the second quarter. These returns do not capture any impact from active management of the assets.

The best performing asset class for the second quarter and year-to-date was Canadian equities. The S&P/TSX composite index returned 6% for the year and 9.1% in Q2.

Canadian fixed income was the second-best performing asset class in the first six months of the year, with the DEX Universe Bond index returning 2.2%. For the quarter, the index returned 0.7%.

In Canadian dollar terms, the MSCI EAFE and S&P 500 indexes returned -8.1% and -9.5%, respectively, during the first half of the year. During Q2, the MSCI EAFE produced -3% return while the S&P 500 declined -3.8%.

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Feds Let Working Seniors Keep More

The Government of Canada has made changes to the Guaranteed Income Supplement (GIS) that will allow for low-income seniors who work to earn more without having their GIS benefits reduced.

“Today’s seniors are living longer and more active lives than ever before, and their participation in the labour market is growing,” says Marjory LeBreton, leader of the government in the senate and secretary of state for seniors.

On July 1, 2008, an amendment to the Old Age Security Act came into effect, increasing the GIS earnings exemption to $3,500 from $500. A single pensioner, for example, earning $3,500 or more will be able to keep up to an additional $1,500 in annual GIS benefits.

This, she says, “will benefit approximately 100,000 working, low-income seniors by putting money back into the pockets of those living on limited incomes.”

The GIS is a monthly benefit provided to low-income seniors who receive the Old Age Security benefit, which is provided to all Canadians over the age of 65 who meet the residence requirements.

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Incentives to Keep Workers to Delay Retirement

Employers have a narrow window of up to two years in which they may be able to change retiring workers’ decisions by offering them incentives to remain with the company, according to a survey by the Employee Benefit Research Institute.

The timing of the offer of a delayed retirement incentive is important, the EBRI 2008 Recent Retirees Survey found. Sixty-three percent or retirees say these offers would have been a lot more effective if the retirees had known about them in the two years before they communicated their intention to retire.

Half of retirees with a defined benefit pension state that receiving a full pension while working part time would have been effective in delaying their retirement and 44% this way about receiving a partial pension while working part time. Also, 48% of retirees indicate that feeling truly needed for an assignment would have been extremely or very effective in encouraging them to delay their retirement. And 38% say that being able to work seasonally or on a contract basis would have been effective in encouraging them to delay retirement.

Other incentives that received significant support from recent retirees include: receiving a pay increase, continuing to receive company-subsidized health insurance benefits at the same level as full-time workers while working part time, doing more meaningful work, locking in pension benefits that were already earned, and having the ability to work from home.

“Although no single incentive is likely to motivate the majority of retirees to stay longer with their employer,” says the report, “it appears that employers may be able to assemble a toolkit of alternatives that would be effective in retaining substantial numbers of workers.”

The survey is based on responses from 4,981 workers in aerospace and defence industry companies who retired in 2003 or later and are currently between the ages of 55 and 65.

To read the survey on EBRI’s website, click here.

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Alternatives No Longer Alternative

Alternative investment strategies—now established components of American institutional portfolios—are no longer “alternative” at all, according to a survey.

The JPMorgan Asset Management Next Generation Alternative Investing Survey finds that alternatives have become an essential part of portfolio strategies for institutional investors employing them.

Average allocations to alternatives exceed 18% and are expected to exceed 22% by 2010—an increase of more than 20%. Investors also say that a 20% to 30% allocation to alternatives is seen as “about right” overall

“While alternative assets have indeed become an essential part of the portfolio, continuous innovation will be required to meet the needs and appetites of institutional investors who will demand an increase in the availability and diversification of alternative offerings,” says John Hunt, CEO of institutional Americas at JPMorgan Asset Management.

Although all institutional investors share a common need for return enhancement and diversification, the growth dynamics of alternatives play out differently in each investor segment, due to unique issues and concerns.

Corporate plans have the lowest average total alternative allocations (13%), anticipated to grow to 15% by 2010. Public funds are currently more active in alternatives than their corporate counterparts. In fact, their participation rate with respect to absolute return/hedge funds has increased approximately four-fold (to 43% of plans invested) since 2004. These investors also show strong growth in private equity and green/sustainable investing. And endowments and foundations are leading the way in alternative investing with allocations accounting for more than one-third of portfolio assets by 2010.

The survey was conducted for JPMorgan Asset Management by Greenwich Associates, primarily via confidential phone interviews with 191 major institutions (76 corporate plans, 50 public funds, 56 endowments and foundations and 9 Taft Hartley plans) active in alternative investments during the first quarter of 2008.

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Companies Fail to Transfer Baby Boomer Knowledge

If experience is the best teacher, most companies are apparently cutting class when it comes to knowledge transfer. A recent study conducted by the Institute for Corporate Productivity finds that just 29% of responding organizations report that they incorporate retirement forecasts into their knowledge transfer practices, and only one-third add “skills gap analysis” into those forecasts.

Most companies also admit they do not formally measure the effectiveness of their knowledge transfer practices.

Furthermore, less than half say they train their managers to identify critical skills, and less than one in four managers (23%) are educated in critical skills transfer.

“For all the public gnashing of teeth about the impending retirement of all those knowledgeable, hard-working baby boomers, relatively few organizations are doing much about it,” says Jay Jamrog, the firm’s senior vice-president of research. “They’re going to wind up in a mad bar-the-doors scramble in the near future if they don’t start trying to tap the knowledge of their most knowledgeable boomers.”

Training remains the most conventional way to transfer knowledge in organizations, with 82% reporting that training is an ongoing knowledge transfer practice. This is especially true in larger companies (those with 5,000 or more employees), where more than 90% employ ongoing training. Another top practice cited was coaching, utilized by 55% of all reporting companies, and mentoring programs are used on an ongoing basis by 44% of organizations.

The study also found there is little consensus about which part of the organization handles the management of knowledge transfer initiatives. Forty-one percent say the initiatives are “managed individually by different business sectors,” while 39% report the initiatives are handled by corporate and 20% use a combination of corporate and business-sector options to manage knowledge transfer practices.

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Revise RRIF Minimum Withdrawal Rules: Study

A C.D. Howe Institute study says the current tax policy that forces seniors to make minimum withdrawals from Registered Retirement Income Funds (RRIFs) whether or not they make financial sense and these minimums should be reduced or abolished.

The study, A Better Riff on Retirement: The Case for Lower Minimum Withdrawals from Registered Retirement Income Funds, notes that since 1992, when changes to the Income Tax Act last adjusted minimum withdrawals, life expectancy is up and real returns on investment are down.

As a result, RRIF holders now face dramatic erosion in the purchasing power of tax-deferred savings in their later years.

The study argues that the present-value cost to governments of tax deferral in RRIFs is not major, but for RRIF holders, being forced to run down RRIF assets poses a threat.

To read the study on C.D. Howe’s website, click here.

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

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