DB Offers Efficient Solution
The features typically found in modern defined benefit pension plans, like the CAAT Pension Plan, meet Canadians’ desired retirement outcomes and would also provide an efficient, lower-stress, retirement income solution for Canadian employers and employees, says ‘Designing retirement schemes Canadians want: observations from a Modern DB Pension Plan,’ a study by CAAT. The survey also found Canadians are willing to contribute more of their income for features associated with modern DB plans like predictable retirement income that is guaranteed to be paid for life. Young Canadians (18 to 34) are also more willing to contribute for retirement security than is commonly thought although they are more likely to work part-time and contract than in the past. As well, few Canadians have formal retirement strategies even though they place high importance on maintaining their standard of living in retirement and people participating in DB plans reported less retirement-planning stress than those participating in defined contribution plans or group RRSP arrangements.
Canadians Plans Uphold Growth Trend
Building on a strong 2016 annual return of 6.8 per cent, Canadian defined benefit pension plans upheld the positive growth trend in the first quarter of 2017 with returns of 2.9 per cent, says the RBC Investor & Treasury Services All Plan Universe. This marks the fourth straight quarter of growth for Canadian pension plans. “Canadian pension plan returns, led by strength in Canadian and global equities, are off to a good start in 2017; however, vigilance is still required,” says James Rausch, head of client coverage, Canada, RBC Investor & Treasury Services. “While ongoing business investment in Canada could spur growth, asset managers will undoubtedly be focusing on maintaining a diversified portfolio and actively managing their risk exposure in the period ahead given evolving macro-economic and political forces around the world.” Positive global economic conditions in the quarter helped lift global equities in delivering a return of 6.2 per cent, up from three per cent in the fourth quarter of 2016. Canadian equity returns retreated slightly quarter-over-quarter, returning 2.3 per cent, down from 5.7 per cent in the last quarter. Canadian fixed income assets rebounded posting a return of 1.4 per cent, compared to a fourth quarter loss of -3.4 per cent.
CPPIB Partners With IndoSpace
The Canada Pension Plan Investment Board (CPPIB) and IndoSpace, developer of industrial and logistics real estate in India, have created IndoSpace Core, a joint venture that will focus on acquiring and developing modern logistics facilities in India. CPPIB has initially committed approximately US$500 million to the joint venture and will own a significant majority stake. IndoSpace Capital Asia will manage the new entity. IndoSpace Core has committed to acquire 13 well-located industrial and logistics parks totaling approximately 14 million square feet, from current IndoSpace development funds. The assets are prime industrial properties located in the top industrial and logistics hubs in India, including Chennai, Pune, Mumbai, Delhi, and Bangalore.
Investment Approaches Examined
The International Foundation of Employee Benefit Plans’ ‘French Canadian Investment Institute’ will deliver investment management education on the latest investment approaches from industry leaders who are directly involved with managing pension assets. It takes place May 25 in Montreal, QC. For information, visit Investment Management
Funding Reform Among PIAC Achievements
Funding reform and the CAPSA governance guidelines rank among the achievements of the Pension Investment Association of Canada (PIAC) over the last four decades. The ‘Top Ten’ list was delivered David Letterman style at its 40th annual general meeting. It has been a prominent advocate for pension funding reform in recent years with recent success as Quebec has moved to a new going-concern plus funding regime and Ontario is now reviewing the issue. It also pushed CAPSA to take a leading role in harmonizing governance guideline regulations across the country and been a key provider of input and feedback as CAPSA developed its governance guidelines and self-assessment tools over the past 20 years. The ‘Top 10’ are at ‘PIAC Lists Top Achievements’ at the Benefits and Pensions Monitor website.
Income Remains Steady
The gross income replacement level in Eckler’s ‘Capital Accumulation Plan Income Tracker (CAPit)’ has remained steady for almost two years, at 59 per cent for males, and 57 per cent for females. The first quarter trend remained steady for both males and females over the previous quarter. Over this time, investment returns have been volatile and decreases in annuity rates have offset the positive investment returns generated in good times. Low interest rates are expected to continue, creating a new reality for plan sponsors and making it even harder for CAP members to retire. Areas where plan sponsors can help members achieve adequate income replacement levels within the CAP offered are investment options including default options, and monitoring their members’ asset allocation. “In our new reality of low interest rates, it’s crucial that members’ asset allocation aligns with their retirement income needs,” says Janice Holman, principal and DC practice leader. “A plan’s target date fund selection, default fund, and member investment elections can significantly impact the level of retirement income a member can generate.”
Results Positive For Fourth Quarter
The median return of the ‘BNY Mellon Canadian Master Trust Universe’ was +3.11 per cent for the first quarter of 2017, marking the fourth straight quarter of positive results. The one-year return of +11.22 per cent was above the universe’s 10-year annualized return of +5.97 per cent and marked the fourth consecutive quarter of positive one-year performance. “The Canadian plans are off to a healthy start for 2017 with 100 per cent of the plans posting positive results and a median return of +3.11 per cent for the first quarter,” said Catherine Thrasher, managing director, global risk solutions Canada, BNY Mellon Asset Servicing.
Smart Beta Impacts Outperformance
The number of asset managers that beat benchmarks last year is reduced when smart beta benchmarks are used as comparisons, says Lyxor Asset Management. It found that 28 per cent of active funds in Europe beat traditional benchmarks in 2016, this becomes just 13 per cent when smart beta indices are used. The number of outperformers of traditional cap-weighted indices is lower than 2015 when 47 per cent of the active managers beat their benchmarks. Active managers that succeeded in outperforming their benchmark were overweight on the ‘value’ factor at the expense of low-beta, quality, and momentum factors. It also found markets were devoid of meaningful trends in 2016 and instead were dominated by “frequent stylistic rotation from one factor to another.” As well, in the current market environment, which is influenced more by politics than by the economy, it was been difficult for active managers to generate performance and take advantage of changes in trends in 2016.
Hedge Fund Surge Continues
The emerging market hedge fund ‘surge’ continued through April as the industry saw inflows reach new heights, says HFR. Total capital invested in emerging markets hedge funds reached an all-time high of $205.8 billion. This occurred as hedge funds investing in emerging markets saw returns of 5.63 per cent during April, which took the return for the year so far to 22.1 per cent. This was the strongest start to the year on record for the emerging market hedge fund world.
Drug Claim Trends Presented
The Benefits Breakfast Club will be ‘Making the Link: Financial Sustainability and Measuring Outcomes’ at a session where TELUS will present the details of the 2016 drug and health plan claim trends for its block of business. Leaders from the benefits consulting community and TELUS will discuss trends in high cost specialty drugs, the diseases driving benefit costs nationally and by province, and more. It takes place June 9 in Brampton, ON. For information, visit Drug Trends
Federal Employee Compensation Rises Rapidly
The cost of federal employees has risen rapidly, with total compensation per employee jumping nearly five per cent per year on average over the past decade, says a report from the C.D. Howe Institute. ‘Premium Compensation: The Ballooning Cost of Federal Government Employees’ says employee compensation accounts for more than $50 billion of federal spending. Part of that is what people usually think of as regular payroll expenses: wages and salaries, plus current payments for health and dental benefits, pension contributions, and social security contributions – Employment Insurance (EI) and the Canada and Quebec Pension Plans (C/QPP). It has been growing around three per cent annually – widening a long-standing premium of federal employees over Canadians working in the business sector. At $64 per hour, average payroll compensation in the federal government is higher than in professional, scientific, and technical service jobs ($40 per hour) or finance and insurance jobs ($46 per hour). The other is less front-of-mind: non-payroll expenses for the value of future benefits earned in a given year and accumulating mainly as unfunded liabilities. It has been rising dramatically – some 23 per cent annually – meaning that federal employees earn far more than their private sector counterparts. It says fiscal pressures will eventually require the federal government to tackle the cost of its employees and recommends it recognize the full value of its employees’ deferred benefits using actual, not invented, discount rates, and include the annual changes in that value in its statement of operations. As well, in managing total compensation costs, it should transition away from the pure defined benefit pension model. In this regard, target-benefit plans are an attractive option because they allow more benefit flexibility for the sake of more stability in contribution rates.
MEPPs Remain Stable
The funded status of the Segal Group’s model multi-employer pension plan (MEPP) remained stable and fully funded at 101 per cent in the first quarter of 2017. This was due to a three per cent gain in assets offsetting a three per cent liability increase. “The Canadian equity market rose in the first quarter with strong materials and service sector performance, but declining oil prices weighed on overall results,” says Cameron McNeil, Segal’s Canadian business leader. “Fixed income’s positive return reflected a correction to previous market expectations on interest rates.”
DC May Require Currency Hedging
UK defined contribution pension schemes should consider using currency hedging to protect members as they become more globally diverse, says a paper from Aon Hewitt, as currency movements could have a significant impact on portfolio volatility and, at times, can dominate returns. This means schemes face the dilemma of how to protect themselves against adverse currency movements. It believes hedging foreign currency exposure back to sterling would generally dampen overall portfolio volatility over the medium term, though the risk reduction benefits may not be so significant for long-term investors. It recommends hedging the full currency risk for asset classes with relatively stable underlying values, such as overseas bonds or absolute return strategies. Investors should take a pragmatic approach with asset classes such as equity, hedging half of the currency risk.
Returns Tick Up In Quarter
Canadian defined benefit pension plan sponsors recorded an uptick in returns for the first-quarter of 2017, says the Northern Trust Canadian defined benefit pension plan universe. The median plan gained three per cent, following a loss of 1.2 per cent in the fourth quarter of 2016. Positive performance was primarily driven by strong equity markets while fixed income also experienced positive performance in a reversal from last quarter. “Canadian pension funds had a good start to 2017 after a minor setback in the fourth quarter of last year,” says Arti Sharma, head of Northern Trust Canada. “Over the past year, pension funds gained a healthy 9.5 per cent, bolstered by stronger stock market performance.”
Manager Compensation Likely Flat
Incentive compensation for traditional money manager professionals is expected to be flat for 2017 while alternative money managers should see more of an uptick, says a financial compensation report from Johnson Associates. The report paints a better picture for private equity managers and projects an increase in incentive compensation for 2017 of between five per cent and 15 per cent above 2016. Hedge fund managers are projected to have flat incentive compensation as well, between five per cent less and five per cent more than in 2016, reflecting fee pressures and capital outflows.
Ivanhoé Cambridge Closes Acquisition
Ivanhoé Cambridge and Callahan Capital Properties have closed on the acquisition of 125 South Wacker Drive in downtown Chicago, IL. It is a 576,000-square foot, 31-storey office tower situated in Chicago’s West Loop submarket, just one block from Union Station. The property offers a variety of tenant amenities including a fitness centre, conference centre, quick-serve restaurant, and financial services. Ivanhoé Cambridge is a real estate subsidiary of the Caisse de dépôt et placement du Québec.
Plan Renewals Focus Of Session
CAAT Assets Grow
Assets in the Colleges of Applied Arts and Technology (CAAT) Pension Plan reached $9.4 billion at December 31, 2016, compared with $8.6 billion the previous year. The plan returned eight per cent net of investment management fees, outperforming its policy benchmark by 1.3 per cent. Over the past five years, it has earned an annualized rate of return of 10.5 per cent, net of investment management fees. These investment returns contributed significantly to the plan’s 113.3 per cent funded status, on a going-concern basis, shown in the actuarial valuation as at January 1, 2017, This is the seventh consecutive year of building reserves and strengthening the plan’s funded position and further demonstrates the sustainability of this modern defined benefit pension plan. “For members, the CAAT plan provides an efficient worry-free way to build predictable retirement income without the need to become an investment expert, or to understand longevity risk, or the effects of inflation on purchasing power,” says Derek W. Dobson, CEO of the plan.
PSP Launches European Hub
The Public Sector Pension Investment Board (PSP) has signaled its continued commitment to Europe with the launch of its European hub. Its growing local team will focus on high-quality, long-term investments predominantly in the private equity, private debt, infrastructure, and real estate asset classes. It will combine long-term capital, with financially oriented insight from its partners and management teams, to form strategic industry specialized investment platforms across Europe. In the last year alone, the team has made significant acquisitions, in line with its mandate to continue to increase PSP’s exposure in the European market. André Bourbonnais, its president and CEO, says “establishing a European hub is a strategic milestone for us and demonstrates our confidence and commitment to the region.”
CPPIB Joins Opposition
The Canada Pension Plan Investment Board (CPPIB) is the latest institutional investor to oppose the re-election of Bombardier Inc.’s executive chairman. As well, the Quebec government says the plane and train maker should listen to the growing number of institutional shareholders citing governance concerns. CPPIB withheld its vote for the re-election of Pierre Beaudoin at Bombardier’s annual meeting. The Ontario Teachers’ Pension Plan also withheld its vote on his re-election on, echoing similar moves by the Caisse de depot et placement, one of Bombardier’s biggest shareholders, and British Columbia funds. In fact, the Caisse also called for a fully independent director to head the board while British Columbia’s main public sector pension fund planned to withhold support for all five of the Bombardier-Beaudoin family members on the company’s board, along with compensation committee members seeking re-election. These actions follow concerns over executive pay hikes of up to 50 per cent for 2016 at Bombardier. Beaudoin later agreed to forgo his increase and other executives agreed to defer them. Beaudoin is expected to stay on despite the opposition as the family’s controlling stake means the pension funds’ opposition is largely symbolic.
RESEARCH: Drug Plans At Crossroads
Employee drug plans are now at a crossroads, says ‘Express Scripts Drug Trend Report 2016’ as the cost impact of patent expiries is slowing, while that of high-cost drugs and patients with multiple chronic conditions continue to accelerate. As a result, its analysis of private-plan spending trends once again reflected opposing cost forces. Factors driving an increase in drug spend have outweighed downward pressure on drug costs. At the same time, high-cost drugs and high-cost patients continued to create troubling trend acceleration. Parallel to these developments is the aging of Canada’s population and the related increase in chronic diseases. To see the study, click here.
ETF Assets Break Through $4 Trillion Milestone
Assets invested in ETFs/ETPs listed globally broke through the US$4 trillion milestone at the end of April 2017, says preliminary data from ETFGI’s April 2017 global ETF and ETP industry insights report. ETFs and ETPs listed globally gathered record net inflows of US$37.94 billion in April marking the 39th consecutive month of net inflows. Year-to-date, a record US$235.21 billion in net new assets have been gathered. At this point last year, there were net inflows of US$81.01 billion. Equity ETFs/ETPs gathered the largest net inflows with US$27.75 billion, followed by fixed income ETFs/ETPs with US$10.78 billion, while commodity ETFs/ETPs experienced net outflows of US$1.28 billion. “Investors continued to favour equities over fixed income and commodities as equity markets performed positively in April. The S&P 500 was up one per cent, international equity markets outside the U.S. and emerging markets were both up two per cent in April,” says Deborah Fuhr, managing partner and a founder of ETFGI.
Disability Trends Examined
Yafa Sakkejha, of the Beneplan Co-operative, will discuss the ‘Push for WSIB to cover Chronic Mental Illness’ at the Benefits and Pensions Monitor Meetings & Events ‘Disability Trends and Risks’ session. She joins Paula Pettit, an associate from Miller Thomson, who will provide information on issues ranging from employee privacy concerns to the undue hardship standard. Youlanda Hart, director of organizational consulting from Sun Life Financial, will explain how employers can take an integrated and strategic approach to increase overall employee well-being and help manage their absence and disability costs. It takes place May 25 in Toronto, ON. For information, visit Return To Work
FORUM Looks At Chronic Disease
Jean Michaud, managing director and senior commodity strategist at Core Commodity Management, will examine ‘Should Institutional Investors Divest From Carbon?’ at ‘CPBI FORUM 2017.’ In another session, Tyler Amell, of Morneau Shepell Work & Health, will look at ‘The Impact of Chronic Disease on Health, Productivity and Engagement.’ It takes place June 5 to June 7 in Winnipeg, MB. Visit FORUM 2017
Awareness Triggers Duty To Accommodate
An employer’s duty to accommodate is triggered as soon as the employer becomes aware of the disability even if this happens after discipline is imposed or threatened, says Lisa Cabel, a partner in the labour and employment group at Norton Rose Fulbright. In the session ‘Recent developments on the duty to accommodate’ at its ‘Annual workplace law conference 2017,’ she said in order for the duty to accommodate to be triggered, it must be shown that the employer knows or ought to reasonably know that an employee is suffering from a disability. This prompts a duty to inquire into the possible relationship between the disability and job performance. Yet, an employee’s failure to inform the employer promptly of disability is not sufficient to avoid the duty to accommodate. Once informed, the employer has to fulfill the procedural component of the duty to accommodate by exploring options for accommodation that may well entail revisiting prior actions or plans of action with regard to the employee. And employers cannot turn a blind eye to evidence of an employee’s disability even if they do not have actual knowledge of the specific medical condition at issue. The question is whether the employer ought to have been reasonably aware.
Great West Moves To Regional Approach
Great-West Life is moving to a regional approach with its group customer business development. The regional structure allows it to continue developing and building on the business relationships currently shared, while meeting evolving customer needs and preferences. There are nine regions with Francesco Di Scianni leading the British Columbia region; Dave Crombeen heading up the new Alberta region; and David Devine leading the mid-west region. Chad Shea is the lead for Toronto, ON, and surrounding area, including Mississauga, Oshawa, and Sudbury; Christine van Staden leads the Toronto (consultant) office, with a specific focus of working with the national consulting houses in the Toronto area. Robert McMaster leads the southern Ontario region and Ernie Laporte is leader of the Ottawa region. Michael Henderson is the Quebec region leader and Robert Gillis leads the Atlantic Canada region. Craig Christie leads institutional investments solutions which focuses on large pension plans, foundations, endowments, and group reserve accounts. Relationships currently in place for placing group insurance and group retirement business and the teams worked with will remain unchanged.
First Rule: Document Everything
There are two components to increasing the chances of winning in litigation, says Richard J. Charley, global head of employment and labour at Norton Rose Fulbright. One, he told its ‘Annual workplace law conference 2017,’ is having a good lawyer and the other is being a good client. The first rule, however, is to document everything, he said. This is important because people’s memories fail especially if things go on for a couple of years. As well, documents get a certain priority and can establish the motivation for a decision being contested. Another important consideration is selecting the right arbitrator for the matter. Some arbitrators are more prone to unions, while others know certain industries better. Indeed, if the arbitrator the matter is going before doesn’t seem to be appropriate, it may require the employer to decide to settle the matter.
Expat Benefit Offered
The Empire Life Insurance Company is introducing a new expat benefit for customers with employees working on short-term assignment outside of Canada. International business travel medical provides coverage to employees and their dependents for emergency medical care and urgent care in other countries. It is also launching Voyageur Global Benefits in Quebec. Voyageur Global Benefits offers benefits for Canadians working abroad and features the MetLife regional service centre model. Located in key areas around the world, the centres help members access local resources while on assignment.
Clinician Should Monitor For Adherence
Checking for drug adherence to medicines taken for mental health conditions is not like testing for drug abuse, says Dr. Joel Sadavoy, head of community psychiatry services at Mount Sinai Hospital. Speaking at Norton Rose Fulbright’s ‘Annual workplace law conference 2017’ in the session ‘Dialogue with the doctor: A psychiatric perspective on workplace mental health issues,’ he said when testing for drug abuse, the aim is to determine if the employee is using drugs when they should not. With drug adherence, it is the clinician treating the employee who should be following up and monitoring their condition because the issue is not whether they are taking their drugs, it is ensuring that the treatment regime is being adhered to. However, he said in cases where the employer has some leverage in their relationship with the employee, adherence could be monitored through things like legal last chance agreements. Here, the clinical requirements would be laid out and the employee would allow the employee to be notified by the clinicians on a quarterly basis about compliance with their treatment. It would also set out the ramifications of not complying up to and including making their continued employment dependent on compliance.
OMERS Ventures Closes Fund
OMERS Ventures has closed Fund III, its third venture capital fund, with $300 million in commitments. The OMERS pension plan participated alongside co-investors BMO Financial Group, CIBC, National Bank of Canada, Sun Life Financial, TD Securities, and the Wafra Group. OMERS Ventures now has a total of $800 million of assets under management. John Ruffolo, CEO of OMERS Ventures, says “When we launched in 2011, the ecosystem was starved for venture capital and corporate participation. Six years later, our third fund is oversubscribed, complete with strategic investors and corporate partners. We are proud to operate on a ‘Canada-first’ mandate’ and are ready to meet new companies and deploy the next $300 million into the innovation economy.”
Boisvert Joins Mercer
Portfolio Structuring Examined
A one-day session on structuring and monitoring fixed income, equities, and alternative investment portfolios is being offered by the ‘Quebec CPBI Region.’ It will feature a discussion and analysis of risks, returns, and management approaches. It takes place May 12 in Montreal, QC. For more information, visit Portfolio Construction