Industry News

April 27, 2017


Benefit Plans Need Flexibility

The current healthcare system is unsustainable and has to change, says Ryan Duesing, a principal at Mercer. However, he told the ‘Future Vision of Group Benefit Programs’ session at the CPBI Saskatchewan ‘2017 Regional Conference’ that organizations can’t sit back and wait to catch up as the government and insurers are shifting more costs to employer benefits plans. Compounding this is there are five different generations in the workforce, access is challenging as people wait for surgery, drug costs are escalating at a rapid pace (which is the scariest part), and the nature of work is changing with an increased ratio of contract workers to permanent workers which is creating new problems for employers trying to engage workers. With most employers offering traditional benefit programs designed in the 1950s when the male head of the household was the only worker, diversity is the word of the day today and the need to offer flexibility in benefits plans is growing. But plans need to offer more than flexibility in benefits that address the physical needs of employees. They need to offer plans that also meet their emotional and financial wellbeing needs. All three are connected as an employee who is staying up at night worrying about finances may also start suffering from physical and emotional stresses.

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Canadians Least Likely To Seek Information

Canadians expect to retire at 62 and live to age of 85 on average, resulting in one of the longest retirement windows amongst their global peers (61 and 81 years respectively), says HSBC’s theFuture of Retirement: Shifting Sands.’ However, despite expectations of a long retirement, Canadians are amongst the least likely to say they actively seek information to guide their financial decisions (42 per cent versus a global average of 56 per cent). It shows only 29 per cent of working age people in Canada think they will be financially comfortable when retired compared to the global average 34 per cent. Those in India (69 per cent) and Indonesia (61 per cent) are the most likely to think this and those in France (10 per cent) the least.

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Number Of Missing Members Growing

Lower vesting thresholds and an increasingly transient labour force mean pension plans are facing a growing number of lost or unlocatable members, says Murray Campbell, a partner at Lawson Lundell LPP. Speaking in the ‘Lost Plan Members and Other Special Cases’ session at the CPBI Saskatchewan ‘2017 Regional Conference,’ he said in many cases it involves a small benefit and the former employee may not even be aware that they are in a pension plan. Another factors for this growing problem include the reliance on electronic communications and direct deposit which mean members forget to communicate changes in their mailing address. Sponsors need to find them because first, they want to pay them their benefit, but more importantly they could be stuck holding these entitlements. As well, with defined contribution plans, they may need to be found to make investment decisions. For defined benefit plans, the Canada Revenue Agency (CRA) could revoke the plan’s tax exemption if members fail to start collecting their benefits at age 71. To find these members, sponsors can ask other plan members to help them locate them; search vital statistics for death certificates; search phone books, social media websites, and obituaries; hire a skip tracer; or use the CRA letter forwarding service as a last resort. Another way to get rid of the problem is to transfer these accounts to an insurance company through an annuity purchase. This is a more popular solution in a plan windup, but it could also be part of a risk management solution. An annuity can be purchased just for the assets owed to missing members to get them off the books. At the same time, in some jurisdictions this discharges the sponsor from any responsibility. To do so, sponsors may need to change their plan language to permit the purchase of annuities and permit this discharge.

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Confidence Edges Upwards

Global investor confidence is edging upwards to the neutral point, suggesting risk appetite is increasing, says the ‘State Street Investor Confidence Index.’ For April, it increased to 99.5 points, up from 96.9 (revised) in March. Confidence among European and North American investors improved, while confidence declined among Asian investors. Kenneth Froot, of State Street, saysOur measure of the global investor confidence has been on the uptick for two consecutive months and resonated with the improving global growth outlook and expectations of higher inflation. Still shy of the 100 level mark, investors’ risk appetite appears to be on hold as they await details of a new U.S. tax plan and a possible resurrection of healthcare reform act.

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Investment Managers Optimistic

Investment managers remain generally optimistic regarding the U.S. economy, but are reassessing U.S. equity valuations, says a quarterly investment manager survey by Northern Trust Asset Management. After a 10 per cent-plus gain in U.S. equities following the November election of President Trump and a Republican-controlled Congress, more than half of those surveyed (59 per cent) said an inability to move key legislation forward is the biggest threat to the rally. A geopolitical incident, trade policy concerns, and equity market valuations are considered the next most likely risks to the U.S. market. Low interest rates, slow but steady economic growth and improving corporate earnings along with a Republican led pro-growth policy agenda bolstered markets, but survey respondents view U.S. equity valuations as getting less attractive and see a risk to the market’s trajectory if the administration cannot enact legislation that supports improved economic growth.

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EI Can Reduce Workplace Stress

Using emotional intelligence (EI) can reduce workplace stress and reduce workplace violence, says Scott Wright, senior vice-president, food safety, human resources, and innovation, Star Group of Companies. And reduced stress in the workplace can have an impact on life insurance policy premiums, he said in the ‘Emotional Intelligence ‒ The Leadership Way’ session at the CPBI Saskatchewan ‘2017 Regional Conference.’ Studies strongly suggest that EI plays a greater role than IQ in determining the success of leaders and organizations. It is a combination of self-management and relationship skills, competencies, and abilities. Fundamentally, it is common sense, he said. However, employers now complain that new people coming into the workplace don’t have it. This makes it harder for them to deal with conflict and negotiate with and influence others. They also lack business appropriate communications, self-awareness, problem-solving skills, resilience, interpersonal skills, and teamwork. He said employers need to work on this with new employees to help them get better because this is the basis of success.

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Pharmacy Services Could Reduce Health Costs

Canada-wide implementation of three pharmacy services could yield cumulative cost savings of between $2.5 billion and $25.7 billion over the next 20 years, depending on the level of uptake of these services, says a Conference Board of Canada report. Expanding pharmacy services would translate to direct cost savings for governments and prevent chronic disease and premature deaths, says ‘The Value of Expanded Pharmacy Services in Canada.’ Commissioned by the Canadian Pharmacists Association (CPhA), it shows expanding pharmacy services to include smoking cessation, advanced medication review for heart disease, and pneumococcal vaccination would improve health outcomes and reduce burdens on the broader healthcare system. Alistair Bursey, chair of the CPhA, says “While we have long understood the health benefits of pharmacist care in interventions such as smoking cessation and cardiovascular disease through past clinical practice research, these findings help to bridge the evidence gap to demonstrate the significant value Canada’s pharmacists can bring to our healthcare system.” By 2035, for every dollar spent, the direct return could reach up to $2.30 for advanced medication review for heart disease, $9.10 for smoking cessation, and $72 for pneumococcal vaccination.

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More Money Flows Into Venture Capital

Venture capital funded-deals received more money during the first quarter, says a PwC Canada and CB Insights report. However, there were fewer deals in the first quarter of 2017. Investment in venture capital-backed companies was up 10 per cent year-over-year. There were 654 venture-backed deals during the quarter. This compares to 79 deals during the first quarter of 2016 and 85 deals completed during the previous quarter. The drop is due, in part, to a decrease in investment in internet-focused companies. Just 23 of the 64 deals completed during the quarter were with internet companies. This sector, usually the top in terms of venture capital funding, had 41 investments in the same quarter last year.

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Schlosser Is Volunteer Of Year

Glenda Schlosser is the CPBI Saskatchewan ‘Volunteer of the Year.’ The director of corporate services at Möbius Benefit Administrators has been a member of CPBI since 2006 and joined the Saskatchewan regional council in 2009. During that time, she has served as treasurer and on various committees.

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Mental Illness Impact Discussed

Christine Burych, of Morneau Shepell, will discuss the impact of a mental illness on the employee, the importance of support from the workplace, and strategies for helping them or others at the ‘CPBI Ontario Benefits Outlook Signature Series’ seminar on mental health. It takes place May 31 in Toronto, ON. For information, visit Mental Illness

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April 26, 2017


Efforts To Protect Portfolios Scaling Up

The world’s biggest investors are rapidly scaling up action to protect their portfolios from climate risk, says the annual benchmark report on the global industry from the Asset Owners Disclosure Project. The ‘AODP Global Climate 500 Index’ says Canada is improving, but six pension funds with combined assets of $124 billion are still taking no action. They include the Air Canada Pension Plan and Canadian National Railways. It finds that 60 per cent of the world’s 500 biggest asset owners now recognize the financial risks of climate change and opportunities in the low carbon transition, an 18 per cent increase on last year as they respond to global commitment to tackle climate change in the Paris Agreement. This year it assesses asset managers for the first time and reveals that they are even more aware of the issue with 94 per cent taking action.

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NDP Proposing Pharmacare

Public pharmacare would improve the current patchwork of private insurance plans, the Ontario Drug Benefits program, and the Trillium Drug Plan, says the Ontario Health Coalition which welcomes the Ontario NDP proposal to expand coverage to 2.2 million Ontarians. It says the plan is a welcome first step towards the ultimate goal of a comprehensive national public pharmacare program for all Canadians. The coalition strongly supports that the NDP’s plan is universal, meaning that all Ontarians would be covered. The NDP proposal would cover a list of 123 ‘essential’ medications by 2020.

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Canadians Turn To Alternative Therapies

More and more Canadians are using complementary and alternative medicines and therapies and they’re using them more frequently, says a survey by the Fraser Institute. ‘Complementary and Alternative Medicine: Use and Public Attitudes, 1997, 2006 and 2016‘ finds more than three-quarters of Canadians ‒ 79 per cent ‒ have used at least one complementary or alternative medicine (CAM) or therapy sometime in their lives. That’s an increase from 74 per cent in 2006 and 73 per cent in 1997, when two previous similar surveys were conducted. As well more than one in two Canadians (56 per cent) used at least one complementary or alternative medicine or therapy in the previous 12 months, an increase from 54 per cent in 2006 and 50 per cent in 1997. And Canadians are using those services more often, averaging 11.1 visits in 2016, compared to fewer than nine visits a year in both 2006 and 1997. The most popular complementary and alternative treatments were massage (44 per cent), followed by chiropractic care (42 per cent), yoga (27 per cent), relaxation techniques (25 per cent), and acupuncture (22 per cent.)

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Depth Of ESG Exposure Low

Most institutions (80 per cent) have an environmental, social, and governance (ESG) component as part of their investment strategies. However, the depth of exposure is low for all but a small group of investors, despite long-term performance potential, says a survey of commissioned by State Street Global Advisors. The institutional ESG research ‒ ‘Performing for the Future at the Benefits and Pensions Monitor website ‒ found ESG implementation is driven by a no-compromise approach: three-quarters have the same performance expectations for ESG as they do for other investments. However, the depth of ESG exposure within portfolios remains low: only 17 per cent of respondents have more than 50 per cent of assets with exposure to ESG factors and 44 per cent have less than 25 per cent.

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Caisse Reports Return

The Caisse de dépôt et placement du Québec had an annualized return of 10.2 per cent and $111.7-billion increase in net assets resulting from net investment gains of $100 billion and net deposits of $11.7 billion. Its annual report for the period ended December 31, 2016, shows each of the three asset classes contributed significantly to its overall five-year return, which outperformed its benchmark portfolio by 1.1 percentage points. This difference represents $12.3 billion of value-added. For the year, it had an overall return of 7.6 per cent, an increase in net assets of $22.7 billion resulting from $18.4 billion of net investment results and $4.3 billion of net deposits. Its overall return for 2016 outperformed its benchmark portfolio by 1.8 percentage points, representing $4.4 billion of value-added.

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CPPIB Acquires Nord Anglia

The Canada Pension Plan Investment Board (CPPIB) and funds affiliated with Baring Private Equity Asia (BPEA) will acquire all outstanding shares of Nord Anglia Education. BPEA controls 67 per cent of Nord Anglia’s issued and outstanding share capital. Nord Anglia is a global premium schools organization. Founded in 1972, its 43 international schools are located in China, Europe, the Middle East, North America, and Southeast Asia.

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Balch Returns To Connex

Denise Balch is returning to Connex as principal consultant. She will spearhead the development and delivery of sponsored educational events in the employee benefits and private healthcare sector and developing solutions to improve dialogue between stakeholders. She was previously business development manager and senior consultant for a national benefits consulting firm.

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Powell Gives Economic Update

The CPBI Ontario London Chapter’s annual ‘Spring Pension and Benefits Update’ will feature an economic update from Lewis Powell, a consultant at Proteus. Ned Pojskic, pharmacy strategy leader at Green Shield Canada, will discuss ‘Everything you need to know about High-Cost Drug Trends plus the Trillium Drug Program.’ It takes place May 10 in London, ON. For information, visit Spring Update

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April 25, 2017


Canadians Fail At Managing Chronic Disease

Although Canadians know that they need to lead a healthier lifestyle, they continue to get a failing grade when it comes to reducing their risks for chronic disease, says the Economic Club of Canada. In Canada, about $69.4 billion is spent annually on direct and indirect costs for five key modifiable risk factors – physical inactivity, smoking, excess weight, use of alcohol, and low vegetable/fruit consumption. Of this cost, approximately 70 per cent is indirect, such as premature death and workplace disability costs. It has formed a strategic partnership with Cookson James Loyalty, experts in evidence-informed health behaviour change interventions, to improve the health and wealth of Canadians. Research is underway to review intervention models that look to demonstrate the impact of small, easy to implement changes for employers that will make a difference to the bottom line and prevent premature death and disability of their workforce. Starting this October, an annual report card on the economic burden of health in the workplace will be unveiled during ‘Healthy Workplace Month.’

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Stock Markets Made Strong Advances

Diversified pooled fund managers posted a median return of three per cent before management fees, says Morneau Shepell’s ‘Performance Universe of Pension Managers’ Pooled Funds’ for the first quarter of 2017. On average, during the first quarter of 2017, diversified pooled fund managers underperformed the benchmark. Stock markets made strong advances in the first quarter. Emerging market equities dominated with an impressive return of 10.9 per cent for the MSCI Emerging Markets Index, while U.S. equities in the S&P 500 Index returned 5.1 per cent. The Canadian market, which largely outperformed in 2016 with a 21.1 per cent return, slightly underperformed the other markets in the first quarter, with the S&P/TSX Index up 2.4 per cent. Bonds yields were also positive, with the median manager performance for Universe bond mandates at 1.4 per cent in the first quarter. Jean Bergeron, partner responsible for Morneau Shepell’s asset and risk management consulting team, says “On a solvency basis, due to good returns and a decrease in the solvency liability, pension fund financial positions improved during the quarter.”

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Caisse Has Agri-food Strategy

The Caisse de dépôt et placement du Québec now has a strategy for Québec’s agri-food sector and has created a $125-million fund (Fonds agroalimentaire CDPQ) to invest in every segment of the sector’s value chain, targeting both companies seeking to accelerate their growth and farmers who operate family businesses, and their successors. “This is a sector with strong growth potential for Québec. It has all that’s needed to succeed, both at home and in global markets, which are becoming increasingly competitive,” says Christian Dubé, executive vice-president, Québec, at the Caisse. It plans to support promising projects in Québec’s agri-food sector, using a variety of approaches. The agri-food sector adds close to $22 billion to Québec’s GDP and exports more than $7.5 billion of its production. The sector’s value chain in Québec consists of three main segments: agricultural production, food processing, and food distribution and marketing. This strategy is built on four pillars: supporting young farmers and entrepreneurs who want to take over a business or create new market leaders; backing owners and the family farm model in the production segment; reinforcing technological transition by improving access to modern equipment; and supporting growth and the expansion of operations in regional and international markets in industries where they are competitive.

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UK Would Allow Employers To Defer Paying Share

The UK government is seeking comment on a change that would allow employers in multi-employer defined benefit funds to defer paying their share of the liabilities when they no longer have active participants in a plan. However, the employer would retain all previous responsibilities to the pension fund, says a government consultation paper. The proposal would help sponsoring employers in non-associated multi-employer funds to manage debts that arise when a participating employer ceases to have active participants, at a time when at least one other sponsoring employer in the multi-employer fund has active participants.

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CI Becomes RIA Member

CI Investments Inc. has become an associate member of the Responsible Investment Association (RIA). The RIA is a Canadian industry association that promotes the integration of environmental, social, and governance (ESG) into the selection and management of investments. CI became a signatory to the UNPRI in February 2017, which involves implementing its principles for responsible investment. In addition, it has adopted a responsible investment policy, under which its portfolio managers will incorporate ESG considerations as an element of their investment decision-making process.

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CPPIB Sells AWAS

The Canada Pension Plan Investment Board (CPPIB) and co-investor Terra Firma will sell AWAS, a Dublin, Ireland-based aircraft lessor, to Dubai Aerospace Enterprise. One of the world’s leading aircraft leasing companies with 87 airline customers in more than 45 countries, it holds a diversified portfolio of 214 owned aircraft comprised of the most attractive and liquid aircraft types in their respective market segments and with an average age of only 5.8 years. The company also has a pipeline of 23 new aircraft on order. CPPIB first invested in the company in 2006.

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Heidary Partners With Excellence Canada

Heidary Health has partnered with Excellence Canada to achieve ‘healthier workforces’ by improving the quality of physical and mental health in organizations across Canada. It offers employers private and secure programs that reduce benefit plan costs and absenteeism. The Heidary Health methodology includes blood screening for a myriad of issues, from hypertension to food intolerances and even to markers for cancer.

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Kennedy Earns Alumnus Award

Melissa Kennedy, Sun Life’s executive vice-president, chief legal officer, and public affairs is receiving the ‘Distinguished Alumnus Award’ from the University of Toronto. Recently named one of ‘Canada’s Most Powerful Women: Top 100’ by the Women’s Executive Network and a ‘Women of Influence Canadian Diversity Champion,’ the honour acknowledges her public service and commitment to the community.

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Conference Looks At CPP

The International Foundation of Employee Benefit Plans’ ‘Canadian Public Sector Pensions and Benefits Conference’ will examine areas such as CPP and what it means for pension plans and prevention and early intervention for managing psychosocial stress and mental health risk. It takes place May 16 and 17 in Ottawa, ON. For information, visit IFEBP Conference

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April 24, 2017


Low Interest Rates May Not End Soon

The prolonged period of low interest rates and low growth that has characterized the global economy since the 2008 financial crisis may not end any time soon, says a report from the International Monetary Fund (IMF). That, in turn, could force major changes on pension funds, asset management firms, and insurance companies. The ‘IMF Global Financial Stability Report’ says the experience of Japan suggests that an imminent and permanent exit from a low interest rate environment need not be guaranteed. Many major economies are experiencing a combination of slow-moving structural shifts, including an aging population and slower productivity growth. These “could conceivably generate a steady state of lower growth, and lower nominal and real interest rates in these countries,” it says, which would pose “a considerable challenge to financial institutions.” Over the long term, the business models of pension fund arrangements and the products would likely have to change significantly as well should low growth and low interest rates persist. Defined benefit pension plans, for example, would have to reduce benefits. However, not everyone would be hurt by an extended period of stagnation. With DB plans giving way to defined contribution plans, asset managers would see their market share increase as more people invest their retirement savings in stocks, bonds, and mutual funds. Asset managers could also siphon business away from life insurers as clients seek alternatives to the low yields provided by whole life policies and other insurance products.

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ESG Part Of Investment Strategies

Most institutions (80 per cent) have an environmental, social, and governance (ESG) component as part of their investment strategies, says a survey of global institutional investors commissioned by State Street Global Advisors. More than two-thirds (68 per cent) of respondents say integration of ESG has significantly improved returns. In addition, 69 per cent say pursuing an ESG strategy has helped with managing volatility. ESG implementation is driven by a no-compromise approach: three-quarters have the same performance expectations for ESG as they do for other investments. However, the depth of ESG exposure within portfolios remains low: only 17 per cent of respondents have more than 50 per cent of assets with exposure to ESG factors and 44 per cent have less than 25 per cent. One-third of this group has between 25 per cent and 50 per cent.

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Millennials Good Candidates For Advice

Millennials in general make good candidates for advice, says a report from AMG. They are eager to start investing and just coming into their prime earning years, yet they are also fairly uninformed about the best strategies for planning the long-term financial future. The report found millennials with money already in the markets often display overly conservative allocations, but they have higher return expectations. They allocating 30 per cent on average toward equities, lower by nearly one-third than older generations, who allocate 46 per cent to the asset class. However, they allocate nearly three times as much of their portfolios toward alternatives (17 per cent) than older investors do (six per cent).

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High Participation No Indication Of Healthy Plan

Sponsors of defined contribution plans spend plenty of time and effort on strategies to boost participation rates; however, high participation levels alone don’t necessarily indicate a healthy plan, says research by Morningstar. It found about half of DC plans offering automatic enrollment place their new participants at a ‘low’ and ‘inadequate’ savings rate of three per cent. As well, participants accepted the default savings rate at roughly the same level, whether it was set at three per cent or 12 per cent. Moreover, those who choose their own savings level tended to opt for higher rates over the plan sponsor’s chosen default. It believes the default rate may even serve as a mental ‘anchor,’ leading employees to incorrectly visualize where the acceptable starting point is.

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Hedge Fund Assets Set New Record

The recent demand for event-driven and trend-following hedge funds has led to assets under management (AUM) in the industry setting three quarterly records in a row, says HFR. Its hedge fund indices ended the first quarter at $3.07 trillion. This followed a $47 billion increase – or 1.6 per cent rise in value – over the three months. There were net asset inflows to event-driven and macro strategies, but there were also outflows from equity hedge and relative value arbitrage strategies.

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Desjardins Invests In Renewable Energy

More than $1 billion has been invested to support renewable energy, thanks to financing from Desjardins Group’s capital markets division and equity investments from the Desjardins Group Pension Plan (DGPP), with the contribution of two Desjardins insurance subsidiaries. Of this amount, nearly $550 million was invested in 31 wind farms, some $300 million in 14 solar energy projects, and $155 million in nine hydroelectric projects and a biomass power plant. Together, these facilities can generate nearly 2,700 MW of energy. This produces enough power to sustain all of the households in Montreal, 3.7 times the power needed for Quebec City, and 1.5 times the amount needed for Ottawa-Gatineau.

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Integrated Closes Loan

Integrated Asset Management Corp. and its private corporate debt group, IAM Private Debt Group, have closed a senior term loan to JMB Crushing Systems ULC, a portfolio company of private equity firm Westward Partners, LLC. JMB has been producing and distributing gravel, sand, rocks, and other materials for over 30 years, supplying aggregates from 35 different quarries and gravel pits. Its aggregates are used for a variety of applications including industrial projects, oilfield developments, asphalt and concrete production, and road work. The capital will allow the business to refinance existing debt and free up working capital to support its growing operations in western Canada and the northwest United States.

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Trudeau Heads Lavery

Anik Trudeau is chief executive officer for Lavery. She has 30 years of experience in the professional services industry, including 20 as a lawyer in a prominent Canadian law firm and 10 in public relations for major international firms.

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Panel Looks At Recent Events

Julie Cays, chief investment officer at the CAAT Pension Plan; Kevin Hebner, managing director at Epoch Investment Partners; and Eric Lascelles, chief economist at RBC Global Asset Management Inc.; will discuss the implication of recent events such as Brexit and the election of Donald Trump in the U.S. on financial markets in 2017 and beyond at the CPBI Ontario ‘Investment Trends Seminar.’ It takes place May 3 in Toronto, ON. For information, visit Investment Trends

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April 21, 2017


Shift To Passive Increases Correlations

The shift to passive investing has had some surprising results, says William J. Booth, managing director, portfolio manager, and senior research analyst at Epoch Investment Partners. In fact, it may be affecting market dynamics, he said at the ‘Focusing on what you can control when investing in public equities’ session at TD Asset Management’s ‘Sharing of Knowledge Learning Series 2017.’ Academic findings show high level of passive investing have raised correlations across stocks, reducing the diversification benefits of all styles of equity investing. With the ability to diversify risk falling, markets have grown more fragile and stocks in indexes are more expensive than non-index stocks because of the amount of money moving to passive funds. While investors cannot control the market environment, they can control how they invest. It is essential that investors look at companies through a financial lens where a company’s value is based on free cash flow generated, not an accounting lens since earnings are “an opinion,” he said. “Cash is a fact.”

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New Ways Needed To Sustain Drug Plans

With more factors, such as demographics and high-cost biologics, pushing the cost of drugs up than factors pulling costs down, employers need to find ways to keep drug plans sustainable into the future, says Barbara Martinez, practice leader, drug benefit solutions at Great-West Life Assurance Company. Speaking at the Benefits and Pensions Monitor Meeting & Events’ ‘Controlling Plan Costs and New Approaches to Drug Plan Management,’ she said there needs to be a new way of thinking rather than just following what Health Canada approves or what doctors prescribe. “Health Canada does not look at cost when it approves a drug,” she said. “It only considers if the drug is safe and if it works better than nothing.” In addition, research by the Patented Medicine Prices Review Board shows that most new drugs on the market show very little or no improvement over what was already available. Doctors also don’t consider cost if the drugs are being paid for by drug benefit plans. “Employees are not acting like consumers. We must build consumerism into our plans and teach members how to shop smart and show doctors they care about plan costs,” she said.

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Shadow Banks Put System At Risk

Shadow banks ‒ non-bank lenders and other financial intermediaries that operate outside the realm of banking regulation ‒ are putting consumers, investors and the overall financial system at risk, says a paper by the Global Risk Institute. ‘Shadow Banking: Non-bank Credit Intermediation Heightens Risks for Global Financial System’ notes that despite regulatory reforms in the wake of the 2007-2009 financial crisis, or perhaps because of them, non-bank entities continue to grow and innovate. Growth in the non-bank sector has been significant. The Financial Stability Board estimates that shadow banks around the globe had US$36 trillion in assets at the end of 2014, or more than a quarter of the traditional banking industry. And while they provide more sources of liquidity, thereby supporting economic growth and diversifying risk across the financial system, they are not subject to the same regulatory standards and safeguards for capital, liquidity, or leverage that protect the banking system. This means they can take on much higher levels of risk. The paper questions whether borrowers are sufficiently aware of the risks, including the risk of a forced asset sale if they default, or if their lender goes under and they cannot find financing from other sources.

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Private Debt Great Complement

Private debt is a great complement to fixed income portfolios because it lets investors focus on what is really important with fixed income ‒ getting your money back, says Bruce MacKinnon, vice-president and director of TD Asset Management. In the ‘Taking control of fixed income with private debt’ session at its ‘Sharing of Knowledge Learning Series 2017,’ he said private debt is a broad and growing market with a large opportunity set. It is fixed income securities that are generally not publically traded, not included in a benchmark, and directly negotiated with the issuers. Traditionally only accessible to large investors, it includes a broad universe of investment opportunities. It gives the investor more control over the risk profile of the strategy, the terms of the deal, and compensation for risk while offering the benefits of enhanced yield, safety, and diversification. Since each deal is carefully negotiated, additional compensation must be paid due to their uniqueness and illiquidity.

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Biologics Offer Potential, But Bring Issues

Biologics offer tremendous potential for the healthcare and drug industries, but they also bring a tremendous amount of issues, says Richard Heinzl, global medical director at WorldCare International Inc. He told the Benefits and Pensions Monitor Meeting & Events’ ‘Controlling Plan Costs and New Approaches to Drug Plan Management’ session that biologics are increasing at a 25 per cent growth rate, with $103 billion to be invested globally this year. That compares to $25 billion in 2011. Already, they have had a huge impact, having helped more than 325 million patients worldwide. Diseases treated with biologics include multiple sclerosis, diabetes, rheumatoid arthritis, psoriasis, colon cancer, and breast cancer. Heinzl said they are very good at treating these diseases, especially the most advanced patients, “but the cost is mind-boggling. We are sleepwalking into disaster.” It takes millions of dollars to develop and test these products and the cost trickles down to the end-user or their drug benefit plan. Despite this, Heinzl has hope for this technology as well as others such as regeneration medicine, personalized medicine, nanotechnology, and artificial intelligence. “Biologics are part of rapid technological change and hope for the future,” he said.

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Headlines Dominate Mind Space

“We live in a world where headlines dominate mind space,” says Bruce Cooper, CEO and CIO at TD Asset Management and senior vice-president at TD Bank Group. In the session ‘Gaining Control in a World of Change’ at the TD Asset Management’s ‘Sharing of Knowledge Learning Series 2017,’ he said the last year has seen Brexit, the UK vote to leave the European Union; the election in the U.S. of Donald Trump as president; and the rise of populism. And while populism arises because of income inequality, it is the cause of some of the things investors need to worry about. In particular, he cited policy distortions which create imbalances. These imbalances create long super cycles where they drive unsustainable growth in the early stages and then impede and destroy growth in later stages. Investors can find value by adding opportunities and limiting exposure to risks they cannot control. And they should be encouraged by the cyclical outlook where markets are no longer focused on a single story.

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Employers Need To Prepare For Marijuana Legalization

The legalization of recreational use of marijuana is going to have a huge impact on employers so they better get ready now, says Norm Keith, a partner at Fasken Martineau. Speaking at its ‘Marijuana and the Workplace: Managing the Risk’ seminar, he said employers should get new alcohol and drug safety policies in place before July 2018 when the legislation comes into effect. It is an employer’s responsibility to prevent injury, accident, and death of all workers. Since drug use already has an impact on workplace safety now, legalization could increase safety and responsibility risk immensely, said Keith. Currently, while recreational use of marijuana is still illegal, 35 to 40 per cent of workplace accidents involve substance abuse while WSIB (Workplace Safety and Insurance Board) costs are 300 per cent higher for substance abusers. If these numbers increase, so will the risk to employers. Corporations and owners/managers can be convicted of criminal negligence when a worker is injured or killed. Alcohol and drug policies can be tricky based on industry, risk factors, and whether addiction is a consideration, so employers need to take the time to put policies together that show due diligence and protect all parties involved. Keith said employers should “focus not on the legality of substance use, but on the effect of substance use on safety and on being fit for duty.”

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Drug Store Updates Own Plan

Even as a company that is the largest purchaser of pharmaceuticals, like other companies, Shoppers Drug Mart was faced with rapidly rising drug spend for its own drug plan, says Mark Rolnick, vice-president, payor partnerships and plan sponsor innovation, at Shoppers Drug Mart. Speaking at the Benefits and Pensions Monitor Meeting & Events’ ‘Controlling Plan Costs and New Approaches to Drug Plan Management’ session, he said the Shoppers’ drug plan was funded by the company with very little co-pay and it even covered some over-the-counter medications. The overall benefits framework was a core-plus options benefit plan. It had no generic substitution and no prior authorization policies. With soaring specialty drug spend and the growing prevalence of chronic disease and mental health disability claims, the company was in need of a change. “After thinking about ways to reduce cost, we thought about the formulary,” said Rolnick. He said they knew the uptake of managed plans was low because they are difficult to understand and communicate and often seemed more focused on savings versus members. After looking at different options, the company decided on a two-tier plan, “but we had to find the right balance between savings and member impact. As pharmacists, we believed we could do better.” The first, and largest, tier is for most medications and has the highest coverage. The second tier includes some medications and has lower coverage. Medications not yet listed are not reimbursed. The plan went live at the company’s central office (3,000 employees) in 2011 and was well-received. The roll out to the retail side of the business (20,000 employees) is this year. Shoppers is sharing its experience and has launched ‘HealthWATCH for Business.’ This will integrate with a business’ current health coverage and focus on better managing the drug spend. The plan includes real time support for plan members at the pharmacy counter as well as other tools and services.

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Trudeau Doing Right Thing

Canada’s prime minister, Justin Trudeau, is doing the right thing when it comes to dealing with U.S. President Donald Trump, says Frank McKenna, former Canadian ambassador to the U.S. former premier of New Brunswick, and deputy chair of TD Bank Group. In the session ‘Politics in 2017 ‒ a new game’ at TD Asset Management’s ‘Sharing of Knowledge Learning Series 2017,’ he said the prime minister appreciates that Trump was elected with certain priorities and needs to follow them through. However, this is creating a sense of uncertainty in Canada that make business decisions difficult. Businesses want clarity on what NAFTA will end up looking like and how a potential border tax will affect business. One of the challenges with Trump is that he is a “reality show” president who wants to stir things up. But politics is not like that and everyone is trying to figure out what he means. And while he has accomplished little to date, he has matured since taking office and has surrounded himself with advisors who are trying to point him in the right direction. In the meantime, he expects Trudeau will do the most important job of a Canadian prime minister ‒ to have a good relationship with the U.S. because it contributes 40 per cent to Canada’s GDP.

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Green Buildings Impact Employees

Green buildings do more than reduce energy and increase real estate value, they also have positive impacts on the employees working in them, says research by the National Research Council of Canada (NRC) and the Royal Bank of Canada (RBC). Their collaboration shows the human resources benefits of building green. The results show that overall, green buildings have statistically higher employee job satisfaction, higher employee engagement and organizational commitment, and higher management-assessed performance. “Organizations inhabiting or owning buildings that are looking to meet green certification standards, such as LEED (Leadership in Energy and Environmental Design), usually use the environmental impact and energy cost savings benefits to make the case for certification,” says Richard Tremblay, general manager of the NRC’s construction portfolio. This research supports the case that “green buildings enhance job satisfaction and enhance indicators related to productivity as well,” he said.

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Two Move Up At Ontario Teachers’

Jeff Clark is managing director, business analysis and quality assurance, and Tamara Finch is managing director, portfolio management, at the Ontario Teachers’ Pension Plan (Ontario Teachers’). Clark joined the organization in 2006 and has since held positions of increasing responsibility. Finch joined Ontario Teachers’ in 2002 and has been instrumental in the development and success of private capital’s portfolio management practice.

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Benefits Fraud Examined

The International Foundation of Employee Benefit Plans’ ‘Canadian Legal and Legislative Update’ will feature sessions on the legalization of cannabis and benefits fraud. It takes place May 18 and 19 in Ottawa, ON. For information, visit IFEBP Update

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