HOOPP Maintains Funded Status
The funded status of the Healthcare of Ontario Pension Plan (HOOPP) was 122 per cent at the end of 2017, unchanged from the prior year. The fund’s net assets reached $77.8 billion, up from $70.4 billion in 2016, following a rate of return on investments of 10.88 per cent in 2017. After several years of stellar investment performance resulting in funding surpluses, the board of trustees approved enhancements to members’ benefits during the year and committed to maintain contribution rates made by HOOPP members and their employers at the same level until at least 2019. These rates have remained unchanged since 2004. Investment income for the year was $7.6 billion compared to $6.6 billion in 2016 and the fund’s 10.88 per cent investment return exceeded its portfolio benchmark by 2.99 per cent or $2 billion. Its 10-year annualized return is 9.55 per cent and its 20-year annualized return is 9.01 per cent. “While we had strong returns pretty much across all asset classes, our public and private equities, fixed income, and real estate all provided significant contributions to our investment income,” says Jim Keohane, HOOPP president and CEO. HOOPP’s liability driven investing approach utilizes two investment portfolios: a liability hedge portfolio that seeks to mitigate certain risks associated with its pension obligations and a return seeking portfolio designed to earn incremental returns to help to keep contribution rates stable and affordable. In 2017, the liability hedge portfolio provided approximately 48 per cent of its investment income and the return seeking portfolio provided 52 per cent.
OMERS Reaches Discount Rate Goal
OMERS achieved its objective of reducing the real discount rate used to calculate its future pension obligations, by 25 basis points, three years ahead of its 2020 strategy target, it says in its annual report for 2017. It made strong progress in 2017 toward its 2020 strategy ‒ which was launched in 2015 ‒ in other areas as well. Its funded ratio increased to 94 per cent, reflecting improvement for the fifth consecutive year. The investment return was 11.5 per cent, exceeding the benchmark of 7.3 per cent and its 2016 investment return of 10.3 per cent. Member satisfaction remained high at 92 per cent and it made progress on employer satisfaction, improving to 85 per cent, from 80 per cent in 2016. However, it says it remains mindful of the risks that may lie ahead. Accordingly, in 2017, the sponsors corporation launched a comprehensive plan review to ensure it is well-positioned to deliver secure and sustainable defined benefit pensions that meet the needs of members and employers at a stable and predictable cost.
Cigna, Express Scripts Merging
Cigna, one of the largest health insurers in the U.S., and Express Scripts, one of the biggest pharmacy benefits managers, plan to merge. If the deal clears regulators, it would be the latest merger to disrupt the healthcare industry which has been under heavy pressure in recent years as the federal government, employers, and others attempt to control soaring health care costs. Drug prices, in particular, are a target and pharmacy benefits managers are key players in that arena since they negotiate rebates from drug manufacturers and discounts from drugstores. Express Scripts administers drug plans for more than 266 million Americans with employer and government health insurance. The merger could give Cigna more control over drug prices, which is a major issue for insurers.
Advisors Use Smart Beta To Diversify
Canadian financial advisors primarily use investment products and strategies based on smart beta indexes to improving diversification and increase yield, says a FTSE Russell survey. It found 31 per cent used them to improve diversification while 30 per cent are looking to increase yield. These uses ranked ahead of transparency (24 per cent), cost (21 per cent), and tax efficiency (18 per cent) which are typically associated with use of index-based investment approaches. “We are seeing smart beta gain more widespread acceptance among financial advisors in Canada. And, as shown in our latest research, these advisors are using a variety of innovative new index-based investment products to pursue a broad range of investment objectives,” says Marina Mets, managing director, fixed income, at FTSE Russell.
Pension Funds Perform Better On Gender
European pension funds are doing better than sovereign wealth funds and central banks at promoting gender equality, says work by the Official Monetary and Financial Institutions Forum, a central banking, economic policy, and public investment think tank. However, it still found inequality among these funds. Its fourth annual on gender balance index shows European public pension funds achieved a 40 per cent score, the highest overall for the three types of institutions in the research. Central banks’ GBI score fell to 19.4 per cent in the 2018 research, from 30.6 per cent in 2017.
Industry Adapts To Shift To Passive
The outlook for global asset-management firms in 2018 is a bit brighter than last year as there are signs the industry is adapting to the shift in investor appetite toward passive investments products, says a report from Moody’s Investors Service Inc. The credit rating agency’s report says that 2017 was a strong year for asset management firms as strong markets powered growth in assets under management (AUM) and fees held up. However, net flows have been a weak spot. Although improved over recent quarters, they were barely positive and not at a level that will drive long-term growth. As a result, its outlook for global asset managers is stable compared to its negative outlook last year which reflects signs that the industry is adapting to the broad shift into passive products. In particular, the report says that active managers are introducing new products, adapting distribution, and better controlling expenses. They are also increasingly using passive products as part of active strategies and are also diversifying into alternative asset management strategies.
Marketplace Lending Enters New Phase Of Growth
Marketplace lending, formerly known as ‘peer-to-peer’ loans, could be entering a new phase of growth, as fintech lenders start packaging their loans into securitized financial products that could attract major investment from institutions, says a Greenwich Associates study. ‘Marketplace Lending Finds a Place in Institutional Portfolios’ found 30 per cent of institutions not currently investing in marketplace loans (MPL) are watching the space or conducting research and due diligence on the asset class ‒ a level of interest that suggests future institutional involvement is on the horizon. “Even a small proportion of institutions allocating to MPL could have a huge impact on the industry overall and securitization could be the key to unlocking those assets,” says Richard Johnson, vice-president of market structure and technology at Greenwich Associates, and author of the study. Over the past decade, marketplace lending established itself as more than a niche industry for consumers and small businesses. This growth has attracted the attention of institutional investors who have seen the loans as a source of higher yield and diversification in an era of low interest rates.
Heartland Dental Acquires Majority Interest
Heartland Dental, the largest dental support organization in the United States, has entered into a definitive agreement whereby KKR will acquire a majority interest in the company from the Ontario Teachers’ Pension Plan and other existing shareholders. Under the terms, Ontario Teachers’ will retain sizeable ownership and will continue as a significant partner to the company. Founded in 1997, Heartland Dental provides non-clinical administrative support services to supported dental offices representing a network of over 1,300 dentists. This investment is the second majority equity event in the company’s 20-year history. In November 2012, Ontario Teachers’ was the first outside investor to take a majority position.
Hedge Funds Get Taste Of Volatility
Hedge fund managers finally got a taste of market volatility last month. However, despite suffering losses, they fared better than major stock indexes. Data from Hedge Fund Research showed that hedge funds beat the MSCI World Index and the S&P 500 during February after the CBOE Volatility Index, or VIX, spiked. During February, hedge funds in the HFRI Fund Weighted Composite Index declined 1.8 per cent, while the S&P 500 declined 3.8 per cent. The MSCI World Index, which measures the performance of large and mid-sized companies in developed markets, saw a slightly bigger drop of 4.3 per cent. More volatility in the market leaves room for hedge funds to outperform as managers are able to take advantage of more dispersion, or the difference between positively and negatively performing assets, in the market.
Natixis Asset Becoming Ostrum
Natixis Asset Management will become Ostrum Asset Management in April in a rebranding which will see all its funds given new names by the end of the year. The firm, an affiliate of Natixis Investment Managers, will continue to roll out alternative solutions such as collateralized debt obligations and private debt on real assets. It will rely on Natixis Investment Managers’ global distribution platform, as well as the Groupe BPCE retail banking networks, to drive its growth. Ostrum, which means purple coloured, was chosen to connect the firm to its parent companies Natixis and Groupe BPCE.
O'Krafka Joins WorkSafeBC
Gala Honours Hedge Funds
Awards for the top Canadian hedge fund administrator, prime broker, law firm, and accounting firm will be presented at the ‘11th Annual Canadian Hedge Fund Awards Gala Dinner.’ Award will also be given out to the best performance by equity focused, market neutral, credit focused, multi-strategy/managed futures/global-macro, and private debt funds. The gala is preceded by the ‘2018 Canadian Hedge Fund Conference.’ It takes place October 16 in Toronto, ON. For information, visit Hedge Fund Gala
Plans Should Get Out
Ontario’s pension reform proposals suggest well-funded defined benefit pension plans should consider annuitizing sooner rather than later and getting out, says Dave Makarchuk, a partner, wealth business, at Mercer Canada. Speaking at the ACPM Ontario Regional Council’s ‘Ontario Funding Reforms: Actuarial and Investment implications for Pension Plans’ event, he said with the current interest rate environment, low yields, and being near the end of a long bull run for stock markets, time could be of the essence for many plans. Some ‒ fully funded plans ‒ should act sooner than later. Underfunded plans, however, will get the gift of time to resolve their funding issues. The proposed rules do not restrict any investment strategy. However, the PfAD (provision for adverse deviations) rules encourage certain strategies with open plans getting some relief over those that are closed. As well assets like cash, GICs, all bonds except for employer issues, and insured contracts are free of the PfAD requirements. Since the implications vary from sponsor to sponsor, he said it is hard to say what to do. However, a structured decision-making framework can help sponsors determine the best course of action for their situation.
Industry Waiting For Reform Regulations
While Ontario has proposed changes from a solvency funding regime to a going concern for defined benefit pensions plans, the industry is still waiting for regulations, says Linda Byron, a senior partner at Aon. She told the ACPM Ontario Regional Council’s ‘Ontario Funding Reforms ‒ Actuarial and Investment Implications for Pension Plans’ that a big piece of what to come will be seen in the regulations. The understanding is that these will be coming in the near future. The proposals offer a permanent change in the face of an environment where bond yields are decreasing, interest rates are low, and asset returns volatile. Volatile solvency contributions did result in three rounds of solvency relief prior to the introduction of these pension reforms. Ontario is following Quebec’s lead. It eliminated solvency funding in 2016. Other jurisdictions like Manitoba and Nova Scotia have also stated their intention to examine the issue, she said. The proposal would reduce the solvency funding target from 100 per cent to 85 per cent with deficits funded over five years with a 12-month deferral for plans below 85 per cent. The reforms go beyond the elimination of solvency funding and shifting to an enhanced going concern model, she said. Letters of credit could be used on a solvency basis only. Special payments would be consolidated into a single schedule with a separate schedule for any plan improvements. Plans eligible for going concern funding would be required to provide funding for adverse deviations (PfAD). Benefits could be improved only if the plan’s solvency is over 85 per cent and 90 per cent on a going concern basis.
Pension Asset Value Decreases
The market value of assets held by Canadian trusteed pension funds decreased 0.6 per cent from the second quarter to $1.77 trillion in the third quarter, says Statistics Canada. This was up three per cent from the third quarter of 2016. Investments in mortgages saw the largest increase in the third quarter, rising 6.8 per cent to $25.6 billion. Real estate investments fell 4.5 per cent to $149.9 billion. Meanwhile, the value of Canadian bond holdings declined 2.5 per cent, co-inciding with the 50-basis-point increase in the interest rate set by the Bank of Canada. Pension fund revenue increased 7.4 per cent in the third quarter, following a one per cent decline in the second quarter. Expenditures fell 32.2 per cent to $20.6 billion in the third quarter, following a 44.1 per cent increase in the second quarter. Pension payments decreased by 2.5 per cent, representing 76.6 per cent of total expenditures. Over 6.2 million Canadian workers belonged to employer-sponsored pension plans in the third quarter. Of this group, 5.2 million or 82.7 per cent belonged to pension plans with assets managed by trusteed funds, while the remainder had assets managed by insurance company contracts.
Annuity Requirement ‘Too Rigid’
A requirement that plan sponsors fund annuity purchases on a solvency basis may prompt a move to buy-out annuities, says Lindy Charles, director, actuarial services and tax member services, Ontario Teachers’ Pension Plan. Outlining the ACPM Ontario Regional Council’s position at its ‘Ontario Funding Reforms: Actuarial and Investment Implications for Pension Plans’ event, she said the organization feels this approach is too rigid. While annuities are seen as a great way to de-risk defined benefit pension plans, she said the requirement of a lump sum top-up is really discouraging. She said ACPM has other concerns with the proposal. It says specific wording in the regulations on the discount rate should be more general to allow sponsors and regulators to adapt faster to changes in the environment. The transition period of three years should go up to five years with phased-in going concern special payments schedules. As well, ACPM would like to see notional reserve accounts introduced to address trapped capital concerns and create transparency around surplus ownership.
Hedge Fund Deliver Solid Returns
Global investors enjoyed solid returns from their hedge fund holdings last year and are expecting even better results this year, says a survey from Credit Suisse AG. Almost three quarters of respondents (74 per cent) reported that their hedge fund holdings met, or exceeded, their return expectations in 2017. This is up from just 30 per cent last year. In 2017, investors expected 7.25 per cent in annual returns from hedge funds. This year, expectations are rising, with investors now hoping to see returns of 8.5 per cent from their hedge fund allocations. The survey found that investors are targeting equity-focused strategies for their hedge fund allocations, including emerging markets equity, fundamental equity long/short, quantitative market neutral, and equity long/short sector funds. By geography, investors are most focused on the Asia Pacific region, emerging markets, and emerging Europe. Demand for North American markets remains “relatively flat, as investors appear to be comfortable with their current allocations to the region,” it says.
Teachers’ Light Up For Women
The Ontario Teachers’ Pension Plan is celebrating ‘International Women’s Day 2018’ today by lighting up its North York, ON, headquarters building with the female symbol to shine a spotlight on its commitment to advance women in business. The plan’s real estate subsidiary, Cadillac Fairview, is also participating in this event. At sundown in the United States, Canada, Peru, and Colombia, dozens of major companies will join Catalyst, a global non-profit focused on empowering and accelerating women in business, with a light display to demonstrate the collective power of global leading companies that are creating workplaces that work for women. “Bold moves provoke bold change,” says Ron Mock, president and chief executive officer of Ontario Teachers’. “The image of so many high-rise office buildings with the red female symbol radiating across metropolitan skylines is an amazing metaphor for reaching new heights in gender diversity, inclusion, and equality.” Ontario Teachers’ executive team is 50 per cent female, with women holding such critical roles as chief risk officer, chief operating officer, chief pension officer, and chief people and culture officer.
Equity Funds In Red
Only seven of the 44 Morningstar Canada Fund Indices increased February, all of them by 0.7 per cent or less, while 12 of the 37 losing indices decreased by two per cent or more. The top performers all tracked fixed income categories with the best performance for the floating rate loans fund index which increased 0.7 per cent. With every major stock market in the world down three per cent to six per cent last month, all of the 22 fund indices that track equity categories were also in the red. However, because the Canadian dollar depreciated against most foreign currencies, the losses for many foreign fund categories were limited to one per cent or less, while domestic-equity funds generally ended up at the bottom of the performance rankings with more severe losses. The worst-performing fund indices were the ones that track the energy, precious metals, and natural resources equity fund categories.
Poka Gets Caisse Funding
Poka, a training and knowledge platform for manufacturers, has raised $10 million in financing which will help the company expand into the United States and Europe and better support its growing global customer base. In addition to the ongoing participation of Poka’s original seed investors, iNovia Capital and Uncork Capital, participants in the Series A funding round included the Caisse de dépôt et placement du Québec through its fund Espace CDPQ, Robert Bosch Venture Capital GmbH (RBVC), and the Leclerc family. Poka is a Web and mobile app that gives workers the power to capture, consume, and share critical information in real-time on the factory floor, leading to improved productivity. Manufacturers including Thomas & Betts, ArcelorMittal, WestRock, and Danone are using its platform.
Forstrong On RBC Platform
Forstrong Global’s portfolio strategies have been added to RBC Dominion Securities A+ platform. Its core portfolio solutions and globally focused completion strategies will be available to RBC Dominion Securities advisors and their clients. These strategies have been designed to meet the challenge of exponential change during these increasingly globalized and discontinuous times.
Zalewski Becomes Partner
Anna Zalewski is a partner in the pension and benefits group at Osler Hoskin & Harcourt LLP. She joined the firm in October 2011 after a one-year secondment as legal counsel with the Ontario Teachers’ Pension Plan’s law and policy group. Her previous roles included communications and policy advisor at the Ontario Securities Transition Office and counsel at the Royal Bank of Canada.
Reynolds Explains Role Of Women
‘Women in Finance: Making Canada’s Financial Industry More Competitive Through Equality’ is the topic of an Economic Club of Canada session. Jennifer Reynolds, president and CEO of the Toronto Financial Services Alliance (TFSA), will discuss her role there, how she plans to further its agenda, and how women play an integral role in enhancing the financial sector. It takes place March 27 in Toronto, ON. For information, visit Women In Finance
Russell Factors In Materiality
Russell Investments Canada Ltd. has developed a methodology that factors in the materiality of environmental, social, and governance (ESG) factors. This methodology “more accurately identifies ESG factors that could impact the financial performance of publicly-traded companies,” it says. Its research has found that traditional ESG scores cover issues that are not material to a particular sector or company. In fact, less than 25 per cent of the data items in the traditional ESG score are considered material for two-thirds of all securities in the index. Ienhance its approach to socially responsible investing. It is also incorporating the approach into its decarbonization strategy, which serves as the foundation for its low carbon investment funds.
Wellness Programs Need Branding
Making wellness programs credible in the workplace means branding them so they are not just another flavour of the month human resources program, says Mary Duncan, chief human resources officer at CAA. Speaking at the CPBI Ontario Benefits Outlook Signature Series: ‘Workplace Wellness ‒ What Works and Why,’ she said making it a brand says the employer is obsessed with taking care of members and creating and sustaining a culture the educates, motivates, and empowers employees to adopt and practice healthy workplace and lifestyle traits. However, she acknowledged that its board and senior managers did want to see a return on investment (ROI) as part of a way to measure its success. And while success of a wellness program is not always about money and can been seen in participation at wellness events and senior management buy-in, it did see a 25 per cent decrease in the cost of diabetes drugs, a 47 per cent decline in sick time and disability among dispatchers, and a workforce where 75 per cent of employee feel less stress, a result she attributed to the addition of a meditation program.
Solvency Rate Falls
As the bull market in equities stalled, Aon’s median solvency ratio for Canadian defined benefit pension plans fell to 99.8 per cent in February, down 1.5 percentage points from the post-recession high reached in the previous month. “February demonstrated just how delicate the markets’ Goldilocks moment might be,” says Ian Struthers, a partner and investment consulting practice director at Aon. “Pensions have benefited from rising equity valuations and higher yields, but that trend quickly reversed in February. It’s too early to tell whether the tide has truly turned, but in a rising rate environment and with growing trade-related concerns over the global expansion, we expect more volatility in stocks and fixed income going forward.” Of surveyed plans, 49.6 per cent were more than fully funded as of March 1, up 3.1 percentage points from the previous month.
Total Health Last Piece Of Puzzle
Now is the time to tackle the most complex element of improving workforce productivity: ensuring commitments to total health from employers and employees, says a Morneau Shepell white paper. ‘Total health: the last piece of the workforce productivity puzzle’ by Dr. Bill Howatt, chief research and development officer, workforce productivity, at Morneau Shepell, explains that workforce productivity (the amount of services or goods a workforce produces within an expressed time and budget) improves when each employee contributes more to the organization’s collective effort. The key premise is that in order to maximize employee contribution levels, organizations and individuals must work together to improve employee total health. “There is no silver bullet – no single policy, procedure, or program – that will solve the challenge of how to enable every employee to be able to contribute at the top of their game in an effort to improve productivity,” says Dr. Howatt. “No two human beings have the same capacity, needs, and motivation, making the ability to influence employees complex.” The solution is to focus on total health and improving employee productivity requires proactively influencing four key areas: physical health, mental health, workplace health, and life health (healthy finances and relationships) through a two-way accountability model.
Trend Is Toward Covering Marijuana
Employers need to understand the process for obtaining medical marijuana and its potential side effects, says Paula Pettit, an associate at Miller Thomson. She told the CPBI Ontario Benefits Outlook Signature Series: ‘Workplace Wellness ‒ What Works and Why’ that as the use of medical marijuana as an alternative to opioids increases, the trend is towards extending coverage. This is prompting insurers to review what products will covered, under what circumstances, and at what cost. However, employers are challenged over how to deal with these prescriptions and activities related to medical marijuana as an insured service. At this point, what is being recommended is that employers focus on understanding the process and asking questions about employee usage and the impact on health and safety in the workplace, she said.
Bond Yield Spike Provides Opportunity
The recent spike in bond yields gives Europe’s active high-yield managers the chance to show their value in finding the best opportunities, even if some investors are still more worried about capital losses, says Cerulli Associates. Active players that are able to uncover hidden value in under-researched areas may be able to fend off competition from passives, it says. “They could deliver the sort of returns that justify the risk of a sector that almost prides itself on the label ‘junk’,” says Angelos Gousios, director of European retail research at Cerulli. Worries that the economy may overheat are once again stoking fears about inflation and for high yield bond (HYB) funds, things were already turning sour last year. “The pullback creates buying opportunities. Managers of active funds, which still account for the vast majority of assets under management in HYB, must go out and find where the fear is being overdone,” says Gousios.
Challenge Is Selecting Wellness Programs
The endless number of options for workplace wellness program makes it a challenge to pick what is “right for you,” says Eda Shere, of Wellpoint Health Services. She outlined a three-step approach at the CPBI Ontario Benefits Outlook Signature Series: ‘Workplace Wellness ‒ What Works and Why’ session. The approach starts with assessing the population of the workplace, knowing the wellness budget, identifying wellness champions, and putting in place biometric clinics, health risk assessments, and employee surveys. Once the assessment is done, specific programs can be identified to meet employee needs. During this planning stage, employers can also determine the frequency of wellness events, the budget, and the communications strategy. At this point, the employer can take action, making sure to measure what they can such as participation rates and track success stories. One challenge is getting leadership buy-in, she said. However, this can be overcome in many cases by discussing the budget with them, sticking to the budget, and sharing the return on investment. Laura Pratt, national practice leader, organizational health at Great-West Life, said the investment in wellness programming need not be expensive as there are many tools available that only take an investment of time. There are, for example, numerous days and months which focus on health issues and provide free online information and support which can range from practical strategies to tools for employers, employees, and others. As well, vendor partners, like group insurers and employee assistance programs, offer health and wellness websites, newsletters, and health risk assessment tools. And employers may have already paid for those things as part of their relationship with them. She said employers need to make sure they’ve done a really good inventory of that and include them in their strategy discussions around what’s going on in their organization and how they can move forward and partner together.
Sheikh Has New Role
Abdullah ‘Abe’ Sheikh (FSA, MAAA) is co-chief investment officer and portfolio manager of Cougar Global Investments, a globally-oriented macro ETF strategist and affiliate of Carillon Tower Advisers. He joined the firm in 2017 as head of research, bringing more than 15 years of investment experience and a background that complements the investment process at the firm. He previously worked for 11 years as vice-president of capital markets research and portfolio management as well as director of quantitative research at J.P. Morgan Asset Management.
Translating Data Examined
A Toronto Area Chapter of the International Society of Certified Employee Benefit Specialists education session will focus on ‘Combining Science and Emotion: Translating Data Into Action.’ Lizann Reitmeier, Canadian health practice leader at Conduent Human Resource Services, will discuss data hidden in plans and what it could mean to important considerations such as future plan costs or the effectiveness of the benefit plan as a tool for employee engagement and retention. Brett Donald, assistant vice-president – marketing at Sun Life Financial, will share how Ella, its interactive digital coach, combines science and emotion to help revolutionize the client experience. It takes place April 5 in Toronto, ON. For information, visit Translating Data
March Interest Rate Assumptions
The interest assumptions required to calculate commuted values and marriage breakdown values for an event which occurs in any month up to and including March 2018 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains nine worksheets:
- Commuted Values ‒ February 2011 CIA
- Marital Breakdown ‒ CSOP 4300, January 2012
- · Ontario (Bill 133) Prior Rates – Rates for Ontario Marital Breakdown with valuation date prior to January 1, 2012
- Annuity Proxy for Solvency Calculations for Non-Indexed & Fully-Indexed Pensions
- Minimum Interest on Employee Required Contributions
- HISTORICAL Marital Breakdown ‒ CSOP 4300, May 2009 (Now Frozen)
- HISTORICAL Commuted Values ‒ 2009 Basis (Now Frozen)
- HISTORICAL Commuted Values ‒ 2005 Basis (Now Frozen)
- HISTORICAL Commuted Values ‒ 1993 Basis (Now Frozen)
DC Returns Creep Closer To DB
In the past decade, U.S. defined contribution plans have seen returns creep closer to those of defined benefit, says a white paper from CEM Benchmarking. ‘improved asset mixes and better plan designs, with more automatic enrolment and better default investment options. While DB plans have outperformed DC plans since a similar analysis by CEM in 2006, the gap is closing. For the 10 years ended year-end 2016, DB plans returned an annualized net 5.36 per cent, compared to DC plans’ annualized net return of 4.89 per cent, for a difference of 47 basis points. The net return difference for the period from 1998 to 2005 was significantly greater, at 180 basis points. It also says differences in fees contributed to improved net returns for DC plans. Costs for DB plans have risen because they are increasingly adopting more sophisticated investment strategies including hedge funds, private equity, and venture capital funds. In 2016, combined policy weights for those three asset classes reached 23 per cent for U.S. DB plans, up from 14 per cent in 2007, compared to less than one per cent of DC plans directly invested in those asset classes in 2016.
DB Disappearing From Fortune 500
Among Fortune 500 companies, only 16 per cent offered a defined benefit pension plan to new hires, compared to 59 per cent two decades ago, says a report from Willis Towers Watson. ‘Retirement Offerings in the Fortune 500: A Retrospective’ shows, however, 51 per cent of Fortune 500 companies still employ workers who are actively accruing DB pension benefits and 93 per cent of those that sponsored a pension in 1998 still manage plan . In 1998, 41 per cent of these companies offered a defined contribution pension plan, but, by 2017, that had risen to 84 per cent. Ten per cent have amended their traditional DB plan to a hybrid design and were still offering these plans in 2017. Only six per cent retained the same DB structure from 1998 to 2017. After having eliminated a DB plan for new hires, most employers contribute more to the DC plan. It also shows that since the Great Recession of 2008, there has been an uptick in plan freezes. In 2008, 20 per cent of companies froze their DB plan and 19 per cent closed it to new hires. By 2017, 42 per cent sponsored a frozen plan and 24 per cent had closed the plan.
Canada May Bear Brunt Of Tariffs
Canada may well bear the brunt of any tariffs on steel and aluminum, as the largest import source for both, says Ruo Tan, president of Segal Rogerscasey Canada. Last week, U.S. President Donald Trump announced last week his intention to impose 25 per cent tariff on steel and a 10 per cent tariff on aluminum in an effort to force trading partners into “fairer” trade agreements. The announcement sparked a negative market reaction on Thursday and Friday, as shares fell for Boeing, General Motors, and other manufacturers of consumer goods that use steel and aluminum. As Wall Street assessed the president’s commitment to the action, strong reaction came from Canada, Europe, and other countries as well as companies, trade groups, and members of the U.S. Congress. Canada exported about C$5.5 billion of steel and C$9.3 billion of aluminum to the U.S. in 2017. Tan says. “Historically, there is no winner in trade wars. The provoked retaliation from other countries could hurt major U.S. exporters, including agriculture. The increase in manufacturing costs may compromise the competitive position of both the U.S. auto and airspace industries. Equity markets may feel a negative impact worldwide and the Canadian dollar will be under further downward pressure.” As well, this will complicate the reworking of the North American Free Trade Agreement (NAFTA), as a major component of the talks centred around U.S. steel tariffs for auto manufacturing.
Private Equity Most Satisfactory
Close to 80 per cent of institutional investors currently invest in alternative assets and over half (52 per cent) invest in three or more asset classes, says Preqin. The asset classes with the highest engagement are real estate and private equity, with 59 per cent and 58 per cent of investors involved in each respectively. Investors reported greatest satisfaction with private equity and infrastructure and found that these two asset classes best met their performance expectations in 2017. However, the greatest proportions of investors are looking to allocate capital to private debt and infrastructure both in the next 12 months and in the longer term. Although the alternative assets industry overall had a banner year in 2017, significant proportions of investors are finding it increasingly difficult to source attractive investment opportunities across all asset classes and a minority are questioning whether they can expect the industry to maintain its recent strong performance in 2018. The majority of investors in all private capital asset classes cited valuations as a key concern in 2018, continuing a trend seen in recent years.
Resilience More Important Than Ever
Resilience in the workplace is more important than ever as our economy slowly improves, says Caroline Kugelmass, from Excel Benefit Consulting. Speaking at the CPBI Southern Alberta Region’s ‘Resilience: How to save money on group benefit plans,’ she said benefit costs can be reduced and employee satisfaction increased by addressing resilience at the employee and management level. Resilience will have the biggest impact on a workplace under the model of Total Rewards, which incorporates the components of social environment, personal development, compensation, and benefits. Mental health issues, for example, have an undeniably negative economic impact should be impetus for employers to act on improving mental health in the workplace. Early intervention and accommodation, as well as access to employee and family assistance programs, are integral parts of supporting mental health in the workplace. An intentional and strategic focus on building a positive and healthy corporate culture is another component to a resilient workforce, she said.
University Workers Launch Job Action
In a fight to protect their pension rights, administrative, technical, and library staff at Carleton University began a job action Monday morning. Negotiations with the university broke off in the early hours of the morning and the union that represents the employees expressed disappointment and frustration at the continued attempts to strip pension language from its employees’ collective agreement. “Throughout bargaining, Carleton has placed obstacles in the path to a fair deal by insisting that a new collective agreement remove our bargaining rights around pensions,” says Jerrett Clark, president of Local 2424 of the Canadian Union of Public Employees (CUPE). “This demand comes at a time when pensions are under attack across the country. But the prospect of a precarious retirement makes CUPE members even more determined to keep their bargaining rights around pensions. They know it’s the best way to ensure their pension will be there for them in their retirement, as well as for future Carleton workers.” The members of CUPE 2424 have identified the protection of their pension as a priority for this round of bargaining.
Ireland Introducing Mandatory DC
Ireland will introduce a supplemental mandatory defined contribution program into its retirement system in 2020. A government reform package will overhaul the national retirement savings system by incorporating new mandatory employee contributions, which are to apply beginning in 2020. This new program, known as a ‘total contributions approach,’ aims to set a formal benchmark target for employees would receive at least 34 per cent of average earnings as their total retirement income. It will also introduce an automatic enrollment program into its retirement system in 2022.
PSP Provides D-Wave Funding
D-Wave Systems Inc., a provider of quantum computing systems and software, has met the key conditions to lock in funding from the Public Sector Pension Investment Board (PSP). In April 2017, it closed on the first $30 million tranche of convertible notes and received a conditional commitment for an additional $20 million. It has now satisfied all the key conditions to lock in the second tranche, which include fabrication and testing of a working prototype processor and the installation of a D-Wave 2000Q system for a customer. The prototype processor uses an new architecture that will be the basis for D-Wave’s next-generation quantum processor. The D-Wave 2000Q system is the most advanced quantum computer available today and the only commercially available quantum device on which customers can develop practical applications. The new capital will enable it to bring its next-generation quantum computing system to market.
Holditch Has New Role
Klinck Speaks In London
Terra Klinck, a partner at Brown Mills Klinck Prezioso will speak on ‘Globalisation – The Canadian and U.S. Markets’ at the ‘Westminster and City 16th Conference on Bulk Annuities.’ She joins Lynn Esenwine and Manuel Monteiro, both partners at Mercer, to discuss what can be learned from comparing one market with another; how the main markets in the UK, U.S., and Canada interact; and the cross border opportunities for consultants, insurers, and reinsurers. It takes place April 25 and 26 in London, England. For information, visit Bulk Annuities
Sun Offers Marijuana Coverage
Sun Life Financial is the first insurer to offer medical marijuana coverage, says an Eckler ‘GroupNews.’ It added the coverage as an option for its extended healthcare plans as of March 1. To qualify for the benefit, members or their dependents must receive prior approval from Sun Life, based on the insurer’s clinical criteria for coverage. Initially, coverage will only be available for specific symptoms associated with cancer, multiple sclerosis, rheumatoid arthritis, HIV/AIDs, and/or palliative care. Coverage for other conditions or symptoms may be approved if medical necessity is established. As medical marijuana does not currently have a drug identification number (DIN), it will be covered under medical services and equipment rather than under prescription drug benefits. Coverage will be subject to an annual maximum, set by the plan sponsor, of $1,500 to $6,000 per person per plan year. Eckler says while a number of employers, such as Shoppers Drug Mart and Loblaw Companies, have introduced coverage for medical marijuana, Sun Life is the first insurer to offer such coverage. It remains to be seen how many employers will add the coverage, what member usage will be, and if other carriers will follow suit.
OMERS Must Stop Indexing Consideration
It’s vital that OMERS stop any consideration of removing the indexing guarantee, says Fred Hahn, president of CUPE Ontario. After yet another high performing year, the OMERS pension plan is well ahead of schedule to be fully funded by 2025, keeping it in a strong position to maintain core benefits like guaranteed indexing, he says. Since most OMERS pension members make modest salaries and defer a portion of their wages to the plan, when they retire, most will receive an annual pension of $30,000. This makes maintaining indexing critical for retirees to keep up with the constant increases in the cost of living. Hahn says, “We believe strongly that the discussion around removing guaranteed indexing is unnecessary and short-sighted. We will continue to do everything we can to make sure it doesn’t happen.” The pension plan was able to use this year’s earnings of $9.9 billion to both lower the discount rate for 2018 and increase the plan fund.
Government To Consult On Unclaimed Balances
The federal government will hold public consultations on the potential establishment of a regime to address unclaimed pension balances, says a Hicks Morley ‘FTR Now.’ Many pension plans have unclaimed amounts in respect of missing beneficiaries and there are no means to pay such amounts out of the pension plans. As a result, plan administrators continue to have a fiduciary duty to administer the unclaimed amount. The budget says the government will shortly launch public consultations on a regime to address these balances, which may lead to legislative and regulatory amendments. Currently, only British Columbia and Quebec have mechanisms in place to handle these funds and Ontario has proposed creating a registry of ‘missing’ plan members. However, it has not proposed a centralized repository for the pension amounts associated with these members.
Chinese Act Potentially Damaging
The Chinese Communist Party’s decision to abolish presidential term limits is potentially damaging to the long-term prospects for establishment of the rule of law, says Andy Rothman, an investment strategist at Matthews Asia. However, this is unlikely to have a significant impact on near-term economic prospects or the investment environment, says his article ‘Interpreting The End Of Term Limits In China’ at the Benefits and Pensions Monitor website. And while this is likely just a lust for power by Xi Jinping, China’s leader, he didn’t really need to take this step, says Rothman.
Mergers Add To Capabilities
In recent years there has been a noticeable effort among institutional asset managers to seek assets globally, often by acquiring client assets and investment capabilities through cross-border mergers, says research from Cerulli Associates. “Rising costs and other pressures on the profit margins of most asset managers are fueling record asset management merger and acquisitions (M&A) activity,” says Alexi Maravel, director at Cerulli. Aside from scale, however, one of the main benefits of M&A is tapping potential global demand for institutional, customized multi-asset strategies and alternatives investments. While 2017 had fewer transactions than expected, there is increasing evidence that international managers are continuing to look for ways to target new client markets. It posits that scaling more customized institutional business could be one of the most significant challenges for the asset management industry in the next decade as not only are custom solutions inherently not scalable, they also require more advanced risk analysis resources, technology, and more sophisticated reporting capabilities that many managers lack. Maravel says, “For those seeking to build these capabilities, whether through M&A or organically, they must remain cognizant of the risks associated and consider the current market if they want to use this strategy to reach a more global clientele.”
Actively-managed ETFs Hit New High
Actively-managed ETFs and ETPs listed globally reached a record high of US$79.3 billion at the end of January 2018, shattering the previous record of US$75.2 billion set at the end of 2017, says ETFGI’s January 2018 Active ETF and ETP industry insights report. In January 2018, actively-managed ETFs/ETPs listed globally saw net inflows of $3.08 billion. Fixed income ETFs/ETPs gathered the largest net inflows with US$1.47 billion, followed by equity ETFs/ETPs with US$1.22 billion.
CPBI Saskatchewan To ‘Ignite & Energize’
Taylor Buckley, a lawyer at Dentons Canada will discuss ‘Gender Identity and the Workforce: A Legal Perspective’ at the ‘CPBI Saskatchewan 2018 Regional Conference.’ He will discuss the legal framework applicable to these issues and best practices for organizations to approach and accommodate pension and benefit plan members and employees. Theme of the conference is ‘Ignite & Energize: Powering the Future.’ Other sessions will look at ‘Statements of Investment Beliefs: Powering Pension Investment,’ with Jeremy Bell, a partner at George & Bell Consulting; ‘A Perfect Match: The Right Target Date Fund for Your Plan’ with Zaheed Jiwani, a principal at Eckler Ltd.; and ‘Drug Plan Sustainability and Employee Engagement’ with Helen Stevenson, founder and CEO of the Reformulary Group Inc. It takes place April 17 to 19 in Regina, Saskatchewan. For information, visit: Saskatchewan 2018