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July 6, 2018


DB Plan Complacency Biggest Risk After Positive Quarter

With the health of Canadian defined benefit (DB) pension plans showing improvement in the second quarter of 2018, the biggest risk now is complacency, says Aon. Its quarterly median solvency ratio stood at 100.2 per cent for the second quarter, up 1.5 percentage points from the previous quarter. The ‘Median Solvency Ratio’ survey from Aon shows the proportion of plans that were fully funded increased to 50.8 per cent, up from 45.8 per cent at the end of the first quarter. “Defined benefit pension plans have fared remarkably well during a period defined by worrisome headlines and rising international tensions,” says William da Silva, senior partner and retirement practice director at Aon. “Now, complacency is the biggest risk. While the Aon Median Solvency Ratio improved quarter-over-quarter, we’ve seen some fairly significant variations in the measure over the past few months – in fact, we’ve seen a decline of 150 basis points in the ratio from a high point of 101.7 per cent at the end of April. In short, it wouldn’t take much to see all of this year’s solvency gains erased – and quickly. Clearly, plan sponsors should now be at least considering steps to implement or update their risk management strategies. The median solvency ratio also shows benchmark bond yields fluctuated throughout the quarter but ended little changed, with Canada 10-year yields up eight basis points and Canada long-bond yields down three basis points. Lower yields effectively raise pension plan liabilities, and adversely impact pension plan solvency. Pension assets during the quarter rose by 1.15 per cent; in the previous quarter, asset returns were -0.4 per cent. As commodity prices rose (+4.9 per cent in the second quarter), Canadian equities were the strongest performers among all risk-seeking asset classes in the quarter, up 6.8 per cent, with U.S. S&P 500 up 5.5 per cent, global MSCI World up 3.8 per cent, and international MSCI EAFE up 0.8 per cent.

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Workplace Mental Health Top Concern

Mental health issues in the workplace are among the top concerns for organizations of all sizes and employees are concerned about the impact of their mental health issues on their career, finds a white paper by the Mental Health Commission of Canada (MHCC), Morneau Shepell, and the Globe and Mail. One in five Canadians experience a mental health problem or illness each year, equating to 500,000 employees unable to work every week due to mental health problems or illnesses. Canadian employees report workplace stress as the primary cause of their mental health problems or illness, with depression and anxiety noted as the top two issues. They also have high levels of concern regarding the impact of their mental health issues on their career and job performance. However, despite the prevalence of mental health issues, the white paper shows employees are confident in their ability to cope with stressful situations. Without effective coping strategies, employees are at risk of further harm to themselves. The white paper says the effectiveness of a mental health strategy predicts how well an organization curbs issues in the workplace and supports at-risk employees, yet most employers don’t have a strategy because they don’t know where to start. Effective policies to curb mental health issues are embedded across all stages of employment, from hiring to retirement or turnover. Organizations should follow two models – a continual improvement or plan-do-check-act model and a joint responsibility model, which puts onus on both the employee and employer to foster a healthy work environment through awareness, accountability and action. Implementing a successful, comprehensive mental health strategy takes time but is integral to the overall health of an organization.

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Pension Blockchain Platform Joins AI Alliance

Pension blockchain platform Akropolis has joined Cindicator’s Symbiotic Network — an AI-driven global alliance of sustainable start-ups and companies. Membership in the network gives access to the collective intelligence of financial analysts, data scientists, traders, investors, and advanced artificial intelligence as it develops a global blockchain infrastructure for the pensions industry. Cindicator is a tokenized fintech company that enables effective asset management through predictive analytics. It unites tech start-ups, companies, and individuals, creating positive feedback loops between all participants of the network. Akropolis will leverage the network to create a successful token economy and viable community built around its plan to enable low-cost, transparent, traceable, and secure pension provision for billions of people.

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June Interest Rate Assumptions Available

The interest assumptions required to calculate commuted values and marriage breakdown values for an event which occurs in any month up to and including June 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)

 

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Marrero Leads ACPM

Ric Marrero is chief executive officer of the Association of Canadian Pension Management (ACPM), effective immediately. He has served as the ACPM marketing and communications director since 2012 and brings to the role over 25 years of national management experience in the non-profit and private sectors.

 

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July 5, 2018


Institutional Approach Best For DC Plans

Recent lawsuits have challenged the investment menu selection approach of many defined contribution (DC) retirement plans, says a report by PGIM. ‘Defined Contribution Investments on Trial – In Defense of an Institutional Approach’ shows some plans use a ‘retail approach’ with the primary focus on what the participants want, using many choices and name recognition. Others use a ‘simple approach’ which focuses on minimizing fees and maximizing simplicity, and using heavy or exclusive use of passively managed funds and basic asset classes. PGIM recommends DC plan sponsors use the institutional approach which has the primary focus on solutions that are believed to offer a higher probability of meeting a desired outcome. An institutional approach looks at how other investors such as defined benefit (DB) plans, endowments, and sovereign wealth funds deploy capital. Their focus includes outcome-oriented investments, broad asset class diversification, use of best-in-breed investment management, a thoughtful mix of active and passive, and taking a vehicle-agnostic approach. The report says for DC plans, this approach can be implemented in different ways, but ultimately it is making sure investments are offered to participants with the objective of meeting their retirement liabilities and managing key risks. Sponsors must balance building institutional DC menus with unique participant need and behaviours, as well as fiduciary concerns.

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New Technologies Clear ‘Poor Disclosure’ Hurdle

The combination of big data and artificial intelligence (AI) is enabling investors to access vast amounts of information from objective sources, bringing greater frequency, granularity, and real-time analysis to environmental, social, and governance (ESG) investments, says global research firm Cerulli Associates. “Enhanced data is enabling asset managers to integrate ESG, leading to new investment themes, such as ESG momentum strategies and investments in line with sustainable development goals,” says Justina Deveikyte, associate director of European institutional research at Cerulli. Although the days of responsible investments merely entailing negatively screening of sin stocks are long gone, ESG has struggled to fully capitalize on quantitative investments, primarily because weaknesses in the data have made it difficult to build strategies. Unlike financial reporting, there are no universal guidelines to steer or compel corporate ESG reporting. Piecemeal information and incomplete data are the norm. Deveikyte adds that data limitations have affected quant investments in various ways. For example, large companies are better at disclosure than small companies. Because most ESG models penalize nondisclosure, this can result in a large-cap bias in portfolios. “The use of big data and AI is radically transforming data gathering. These changes have opened up ESG investments to quant funds, which are busy developing new algorithms to systematically evaluate companies.” She says vastly improved access to data is changing the way asset managers integrate ESG, enabling new investment themes. “For example, some asset managers are using the data flow to introduce more short-term, reactive strategies, traditionally difficult in ESG because of the slow pace of change, accentuated by the lag in reporting data.”

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Investors Must Be Alert To Child Labour

In an era of complex global supply chains spanning many countries, investors must be alert to the potential use of child labour and modern forms of slavery, says UTAM. It has joined 128 institutional investors that invest in the Canadian market – collectively representing $2.3 trillion in assets under management – in urging the government of Canada to enact legislation that will help investors and Canadian companies better identify and address the incidence of slavery and child labour globally. The proposed law would require all companies operating in Canada to develop and report annually on their efforts to prevent and mitigate risk in this regard. The statement recognizes a number of steps undertaken to date – notably Canada’s participation in last year’s joint declaration by G20 leaders stressing the responsibility of businesses within their countries to “take immediate and effective measures to eliminate child labour by 2025, [as well as] forced labour, human trafficking, and all forms of modern slavery.” Although the statement welcomes these initial steps, it stresses that they are not enough. The signatories ask the government of Canada to pass legislation aimed at preventing and remedying the most egregious human rights abuses in supply chains and individual businesses before complaints arise. This legislation would oblige disclosure of all relevant information on how Canadian companies are monitoring and mitigating human rights issues, so investors can make decisions accordingly.

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La Caisse Invests In BFL CANADA

La Caisse de dépôt et placement du Québec has acquired a minority interest in BFL CANADA, a large commercial insurance broker. Through this transaction, BFL CANADA will pursue its expansion into key regions of the country. The company will also be able to continue increasing its use of technology to improve efficiency in its activities and enhance the customization of its insurance services. Barry F. Lorenzetti, founder, president, and chief executive officer and the existing team of senior executives will continue in their positions to lead the company.

 

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Parsan Focus On HR Programs

Anand Parsan is a vice-president in the consulting practice at Morneau Shepell. With more than 20 years of experience as a compensation and human resources consulting executive, he will help expand its capabilities in this area. He will focus on helping clients deliver HR programs that align with their objectives and create strong employee experiences.

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July 4, 2018


Ford Government Makes Changes To OHIP+

The Ford Ontario government says it will fix the OHIP+ program by focusing benefits on those who do not have existing prescription drug benefits. Children and youth who are not covered by private benefits would continue to receive their eligible prescriptions free. Those who are covered by private plans would bill those plans first, with the government covering all remaining eligible costs of prescriptions. “This new system would be more efficient, saving the taxpayers money and dedicating resources to the people who need it most. Even more importantly, it would continue to guarantee that children and youth still receive the prescription drugs they need,” says Christine Elliott, minister of health and long-term care. “Since insurance plans can cover thousands more drugs than the 4,400 currently available through OHIP+, children and youth would have access to more medications than under the current program. Private insurers have previously given the government a grace period for some medications, which is set to expire on July 1. We are asking those insurance groups to extend this grace period as we make these changes.”

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OSFI Issues PRPP Member Guides

OSFI has issued five Pooled Registered Pension Plan (PRPP) ‘Member Guides’ for federally registered PRPPs. Under the Multilateral Agreement for PRPPs, OSFI is responsible for supervising all federally registered PRPPs that include members of jurisdictions that are subject to that agreement. The federal PRPP Act applies to such PRPPs instead of a provincial PRPP Act, subject to certain exceptions impacting individual benefits, such as locking-in requirements and the types of savings vehicles into which PRPP funds may be transferred. The new guides describe the general requirements for PRPPs as well the various requirements impacting individual benefits for federal, British Colombia, Saskatchewan, Ontario, and Nova Scotia PRPP members. A guide for Manitoba members will follow.

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Navigating The Path Between Hybernation And Termination

Many U.S. defined benefit pension plans would state their ‘end game’ as being either one of hibernation – creating and maintaining a low-risk portfolio – or of termination – with the aim being to remove risk from the table as early as possible. But is it truly as clear cut as ‘hibernation versus termination,’ and do plans really need to make a choice to commit to one or the other? Michael Carse explores this topic in his article, ‘Navigating The Path To Optimized Pension Risk Transfer,’ available on the Benefits and Pensions Monitor website. Carse says that while hibernation may be an effective strategy for much of the journey, pension plans cannot remain in hibernation indefinitely; there comes a point when every plan, regardless of size, will need to shift gear and opt for termination. It is deciding when the optimal time is to act and transfer the residual that is key.

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Fang To Lead Northern Trust Canada

Alice Fang is president of Northern Trust Asset Management, Canada. Previously, she was vice-president, investment solutions, with Scotiabank.

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Fall Program Provides Pension Certificate

The Canadian Pension and Benefits Institute (CPBI), in partnership with the HRPA, will offer a pension plan certificate program again this fall. Content will range from an introduction to the key elements of a Canadian retirement arrangement and its context to an-depth look into the guiding principles of retirement plans. The three levels of the program will take place October 20 to November 1 in Toronto, ON. For information, visit Pension Certificate

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July 3, 2018


Nova Scotia’s PSSPTI Has 5.77 Per Cent ROI

For its fiscal 2017-2018 year, the Public Service Superannuation Plan Trustee Inc. (PSSPTI) achieved a positive rate of return on investment of 5.77 per cent, gross of investment management expenses, generating $343 million in total investment income. The total net assets for the Nova Scotia public-sector pension plan were approximately $6.4 billion and, as of March 21, the plan was 103.4 per cent funded. In its annual report, PSSPTI says it has a membership growth initiative that aims to grow its membership to improve its aging demographic profile. “Since it was first implemented in 2015, this membership growth initiative has expanded the PSSP membership by almost 1700 active members and 700 retirees,” says Ronald Smith, chair, PSSPTI. “Our guiding principle for membership growth is that it must enhance the long-term sustainability of the plan and be cost neutral to the plan and its existing members.”

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Gender Wage Gap At 12 Per Cent

As the average national salary in Canada continues to rise, the gender wage gap still remains at about 12 per cent. When this figure is broken down by industry, it’s clear some jobs have much higher pay gaps than others, says Adzuna, a job search engine. However, many industries that have large pay gaps are also in high demand. The job position with the highest pay gap of 39.4 per cent, employment counsellors, accounts for more than three per cent of all job listings on the site. Citing a study by the Organization for Economic Cooperation and Development (OECD), it says Canada had the seventh highest gender pay gap among 34 other countries. While there are other factors that influence the difference in compensation between men and women, a large portion of the gender pay gap cannot be explained by career or life choices. This percentage is presumably due to gender discrimination.

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Starlight, Blackstone Acquire Multi-family Building Portfolio

Starlight Investments and an affiliate of Blackstone Property Partners have formed a joint venture to acquire a portfolio of six multi-family buildings comprised of 746 units. The portfolio is located in the urban core of Canada’s economic hubs with five properties located in Toronto, ON, neighbourhoods and one in Montreal, QC. The partnership marks Blackstone’s first investment in Canadian multi-family real estate. The portfolio contains a mix of high-, mid-, and low-rise concrete multi-family buildings.

 

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Amazon To Acquire PillPack

Amazon is getting into the pharmaceutical business by acquiring U.S. online, in-network pharmacy PillPack. PillPack organizes medications in pre-sorted dose packaging, coordinates refills and renewals, and ships the medications to end-users. PillPack is based in Manchester, NH, and is available in 49 states. It is an online service that also has several pharmacy locations across the U.S. The transaction is expected to complete during the second half of 2018.

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Greschner Has New Role

Mike Greschner is a partner at George & Bell Consulting. He had 14 years of benefits consulting experience before joining the firm in May 2017. He will continue to advise multi-employer benefit plans, governments, municipalities, and corporations on benefit plan design, funding, accounting, and delivery.

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June 29, 2018


Institutional Investors To Use More AI

New regulations, new technologies, and evolving commercial demands are transforming the investment research industry and could reduce demand for investment bank research and speed investor uptake of artificial intelligence (AI) solutions, says a study by Greenwich Associates. MIFID II regulations and other factors will result in the further “unbundling” of investment research from trading, not only in Europe, where the rules took effect early this year, but around the world, says Richard Johnson, vice-president of Greenwich Associates market structure and technology, and author of the report, ‘The Future of Investment Research.’ As the market for investment research evolves over the next five to 10 years, investors will rely more on proprietary in-house research. In addition, many investors expect to increase their use of research from independent providers, and to integrate alternative data sources more tightly into their investment process. Those in-house research processes will increasingly include artificial intelligence. Although only 17 per cent of study participants are currently using AI as part of their investment process, more than half expect to increase the level of AI integration and recruit additional internal expertise, and 40 per cent expect to increase budgets for AI. “Data science skills and AI expertise are replacing advanced degrees in quantitative finance as the most in-demand qualifications at large investment organizations,” says Johnson.

 

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OPTrust Launches Climate Change Action Plan

OPSEU Pension Trust (OPTrust) has launched the ‘Climate Change Action Plan,’ a report that contains eight areas for action that will make OPTrust more resilient and agile to meet the investment challenge that comes with climate change. Among others, the areas for action include defining a clear baseline to measure the pension plan’s exposure, considering climate risk factors when assessing investments, and pushing for increased disclosure of climate change-related information from portfolio companies. “Climate change is one of the most significant challenges facing us today. As investors in so many sectors around the world, we need to better understand its impact so we can protect our members’ interests,” says Hugh O’Reilly, president and chief executive officer of OPTrust. “We don’t yet have the data or tools we need to determine whether, and if so to what extent, climate change poses a risk to our members’ pensions. However, we are committing to build climate change risk into our investment approach, starting now.” With its ‘2017 Funded Status Report,’ OPTrust became one of the first pension plans to report in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD recommends disclosure in four areas – governance, risk management, strategy, and metrics and targets. OPTrust’s ‘Climate Change Action Plan’ builds on these commitments.

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IIROC Requests Comments On Client Identifiers

The Investment Industry Regulatory Organization of Canada (IIROC) has opened a second round of public consultation on ways to expand the use of client identifiers to maintain market integrity, protect investors, and mitigate risks in electronic trading, while minimizing its impact on investment firms. The organization’s proposed amendments would require client identifiers on each order sent to a marketplace and on each trade in debt securities reported to IIROC. Institutional clients would require a Legal Entity Identifier (LEI), while an account number would be required for retail clients. IIROC understands that there may be significant impacts from making the changes to accommodate LEIs, so it is requesting specific comments on implementation impacts, costs, and timelines, as well as suggestions for alternative approaches. After publishing its initial proposal in May 2017, IIROC formed a working group comprised of dealer members, vendors, marketplaces, and the Canadian Securities Administrators. It will continue to consult with the group during this new comment period.

 

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UK’s FCA Acts To Protect Consumer Pensions

UK’s Financial Conduct Authority (FCA) has launched a consultation on a package of measures designed to protect consumers, improve engagement, and promote competition in the retirement income market in the UK. The consultation accompanies the publication of the final report of the ‘Retirement Outcomes Review,’ the FCA’s in-depth look at how the pensions and retirement income sector has been working since the pension freedoms were introduced in 2015. The FCA found that, while consumers have welcomed the freedoms, some are at risk of harm. For example, the FCA estimates that some drawdown customers could receive 37 per cent more retirement income from their retirement plans every year by investing in a mix of assets rather than cash. Defined contribution pension plans will grow significantly in the coming years, so it’s important to put this market on a good footing and keep it under review, says the FCA. The measures will help consumers at key points when they make decisions about what to do with their pension investments, as well as providing ongoing support to consumers once they have accessed their pension plans. They include improvements to the clarity and timings of communications prior to people making decisions about what to do with their pension plan, simplifying the options that people have, and the ongoing communications people receive. The FCA proposes that ‘wake-up’ packs should be sent to customers from the age of 50 and then every five years until the customer has fully accessed their pension plan. The packs will have to include a single page summary, sometimes called a ‘pensions passport,’ and firms will also have to include specific retirement risk warnings at the same time as the new packs. The new communications will be designed to address the lack of consumer engagement and help consumers engage with the risks and choices they face and prompt them to access the support and guidance they need.

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OMERS Private Equity Invests In Direct Healthcare Company

OMERS Private Equity, the private equity investment arm of OMERS, will become the lead investor in direct healthcare company Premise Health. Based in Tennessee, Premise Health partners with organizations to address the health needs of their employee and dependent populations throughout the U.S., Gaum, and Puerto Rico. Premise’s executive team will continue to lead the company.

 

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