Pension Protection Impedes DB Plans
While the goal of protecting pensions is a laudable one, Bill C-253 will have the opposite effect by impeding the ability of defined benefit pension plan sponsors to borrow money to operate, says the Association of Canadian Pension Management (ACPM). Bill C-253, a private member’s bill, proposes to amend the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) to ensure that DB pension claims are paid in priority to secured and unsecured creditors in the event of the bankruptcy or restructuring of the sponsoring employer. Currently, the BIA provides amounts are paid in priority to secured creditors. Bill C-253 will make it impossible for some DB pension plan sponsors to access capital and expensive for others. For some, it will be impossible, for others expensive. The reason for this is that lenders, such as banks and bondholders, would see their interests suddenly become subordinate to potentially substantial, fluctuating, pension deficits. The increased lending risk resulting from Bill C-253 will put Canadian companies at a competitive disadvantage to companies in other countries that do not have to give preferred creditor status to pension deficits. In addition, if passed, Bill C-253 would likely have the effect of instantly depressing the value of corporate bonds issued by such employers. Such corporate bonds are widely held by Canadians in their retirement savings portfolios and by institutional investors such as registered pension plans. Moreover, this legislation would make it that much more difficult for a distressed employer to secure any financing if they sponsor a DB plan. While this legislation might be helpful in securing pensions for retired members in the short-term (possibly at the earlier demise of the company), it would hurt those still employed as well as all suppliers to that company. In a broader sense, Bill C-253, if it comes into effect, would hasten the result that good pension and public policy ought to be designed to protect against: it will cause DB plan sponsors to terminate their DB pension plans in response to an inability or difficulty in obtaining credit.
Acute Care Drugs Declined With COVID Onset
Prescription drug claims for acute care medications, such as antibiotics, saw significant declines at the onset of the COVID-19 pandemic, says the sixth annual TELUS Health ‘Drug Data Trends & National Benchmarks Report.’ It also shows that claims for specialty drugs designed to treat rarer, yet increasingly chronic diseases continue to account for a large percentage of eligible costs, while claims for medications to treat mental health conditions also increased. “A decline in claims for common medications like antibiotics in the early months of the COVID-19 pandemic was evident in the report findings and may be correlated to populations quarantining thereby reducing the spread of common infections, or quite possibly Canadians avoiding or delaying care due to fear of exposure to the virus,” says Shawn O’Brien, principal, health benefits management, at TELUS Health. “This trend speaks to the importance of working Canadians understanding what is covered in their benefit plan and employers having a diverse range of tools, including virtual care services, to support their employees in managing their physical and mental health.” The use of acute medications for common infections dropped by 22 per cent in April 2020, compared to the previous month. Claims for azithromycin alone, an antibiotic used for common infections such as ear infections and strep throat, dropped by 73 per cent during the second quarter of 2020. Claims for acute medications did, however, see a rise towards the latter half of 2020, likely due to more Canadians having access to and using virtual care services to secure treatment. As well, specialty drugs remain the single biggest factor influencing private drug plan management and account for a third of overall costs – yet are used by just 1.3 per cent of total claimants. Average eligible costs for specialty drugs increased by 8.7 per cent for insured Canadians aged 25 to 64, compared to 1.3 per cent for non-specialty or traditional drugs. Finally, claims for drugs used to treat depression increased by 10 per cent for adults and 22 per cent for dependents in 2020.
Remote Work Impacts Generations Differently
While the long-term implications of remote work are yet to be seen, over the past year it appears that working remotely has impacted each generation quite differently, says an ADP Canada ‘Workplace Insight Survey.’ Many Canadian remote workers (44 per cent) reported working longer hours compared to pre-pandemic times, but Gen Z remote workers (under 25 years old) have been the least likely of all generations to clock extra hours (31 per cent). Millennial remote workers (those aged 26 to 40), on the other hand, were the most likely to report an increase in the hours of work, with nearly half (48 per cent) reporting they are putting in more hours compared to pre-pandemic times. When it comes to the prospect of returning to the office, the survey revealed that Gen Z remote workers are the most excited (36 per cent) to return to the physical office, followed closely by Millennial remote workers (34 per cent). This excitement seemed to taper off with age, with only 29 per cent of Gen X (aged 41 to 55) and 26 per cent of Baby Boomers (aged 56+) looking forward to returning to the office. Gen Z workers were also more likely (34 per cent) to note incentives offered by employers, which could be further motivating them to return to the workplace. These include transit subsidies, a flexible schedule, free parking, and additional compensation ‒ all of which Gen Z workers were significantly more likely to say are being offered by their organization, when compared to respondents from other generations.
Low Carbon Not Rewarded
The low carbon factor is not a rewarded factor, says Scientific Beta. In a research paper, ‘When Greenness is Mistaken for Alpha: Pitfalls in Constructing Low Carbon Equity Portfolios,’ says analysis of the performance of the low carbon factor decreases it from 1.74 per cent to -0.32 per cent once exposures to the traditional rewarded equity factors are accounted for. Mistakenly using low carbon strategies as a source of alpha actually reduces portfolio performance for investors who have access to standard equity factors. Constructing portfolios using low carbon scores like any other alpha score does not improve performance and leads to problems with concentration and investability. The costs borne by investors who build portfolios with a mistaken belief in a positive low carbon alpha are substantial. Multi-factor portfolios that impose positive weights on the low carbon factor have an inferior risk-return profile. A low carbon allocation of 40 per cent leads to a poorly factor-diversified portfolio and as a direct consequence gives up 100bp of annualized returns on a risk-adjusted basis. Finally, the study also shows that the use of carbon scores, in an approach that is termed ‘integrated’ because it mixes these scores with scores on the traditional equity styles at stock level, does not improve portfolio performance.
CDPQ Finances Poka
The Caisse de dépôt et placement du Québec (CDPQ) is participating in financing led by 40 North Ventures of Poka, a connected worker platform built specifically for manufacturers. With the manufacturing sector facing a perfect storm of challenges from a worsening skills crisis, increased operational complexity, and workforce volatility caused by the pandemic, Poka helps address these challenges by giving factory workers the ability to learn continuously and solve problems more autonomously at the point of need. Poka will use the new funds to accelerate product development in support of the company’s vision to give manufacturers a single hub for operational knowledge and collaboration on the factory floor.
Pedersen Leads Alignment
Endre Pedersen is CIO, global emerging market fixed income, at Manulife Investment Management. A 22-year veteran of EM fixed income, he will lead the further alignment of its global emerging market fixed income team. Also promoted to the team are Fiona Cheung, previously responsible for the firm’s credit activities in Asia ex-Japan, as head of global EM fixed income research. Don Tucker, formerly head of U.S. fixed income research, is head of global developed market fixed-income research. Joseph Huang is head of South Asia fixed income research and Nick Pena, formerly managing director, senior credit analyst, U.S. fixed income, is sector leader of the EM fixed income research team.
Change Management Strategies Examined
‘Change Management – Strategies for Success’ is the focus of a CPBI Southern Alberta session. Dr. Mike Mousseau, a national well-being and engagement consultant, and Leah Eggen, a senior organizational change management consultant, will cover the science and theory for change management and how it can be applied in practice within organizations. It takes place June 23. Information is at https://www.cpbi-icra.ca/Events/Details/Southern-Alberta/2021/06-23-Change-Management-Strategies-for-Success
Plan Members Never Panicked
The concern heading into the pandemic was that defined contribution pension plan members would panic and seek out less risky asset classes, says Kate Nazar, vice-president, strategy and market development, group retirement services, at Sun Life. Speaking at the Benefits and Pensions Monitor Meetings & Events ‘Highlights from Designed for Savings 2021: A preview of actionable insights’ webinar with Eric Monteiro, senior vice-president, group retirement services, at Sun Life, she said the evidence was the opposite. Looking at the level of activity involving interfund transfers and contributions for the full year ending March 2021, “we saw 5.4 per cent of plan members making an interfund transfer, meaning they were moving assets between investment options. This volume was actually lower than pre pandemic periods. And not all members de risked when making an interfund transfer. While 30 per cent of members ended up in more conservative investment options, nearly 40 per cent added equity exposure during these 12 months signaling that they actually saw it as a buying opportunity. There were also saw changes in contribution activity although only 13 per cent of members made changes. In fact, five per cent of members actually increased their contribution during the pandemic, whereas only about seven per cent made reductions. Beyond plan design features, members with the biggest long term growth in their accounts were also more engaged in their plans, said Monteiro. There were actually a variety of drivers that contributed to higher account balances. Some of these drivers were usage of investment solutions like target date funds, higher use of web and mobile platforms, and work place savings campaigns that nudged members to take the maximum benefit of their plans and to take action. Member engagement campaigns that encourage ongoing interaction with the plan are a factor in higher contributions as well. However, there’s clearly more work to do engaging younger members, both to educate them as well as to engage with them on solutions that may help with the other financial barriers that they’re facing. “For example, many of them might be more worried about saving for a down payment on a house or a car. It’s also important that sponsors to assess if younger members feel they’re just not able to save for retirement and understand the reasons behind it so they can help address these issues.”
Decumulation Necessary Now
At one point, the decumulation of retirement assets was not considered important to solve because more people were covered by defined benefit pension plans, says Frederick Vettese, former chief actuary of Morneau Shepell and author of several books exploring Canada’s retirement system. In the Purpose Investments session ‘Longevity Pension Fund: Why is this game changing,’ with Som Seif, founder and CEO of Purpose, he said this has changed because retiring employees are now relying on their defined contribution amounts. With DB plans decumulation wasn’t important. With DC plans, it is As well, the number of people who are 65 years of age has grown enormously with over 1,000 people a day reaching 65. And this will continue for some time. Since this is the first time people are retiring with a lot of money in capital accumulation plans, a way needs to be found to convert that into a regular monthly income. “We kind of had a solution before ‒annuities,” he said. And 25 years ago, when the real return on risk free investments like real return bonds was four per cent, it was viable. Today, the return is zero per cent which means that the annuities have become a lot more costly than they were. “I was hoping that a better product would come along, something that is longevity based and that people can rely on,” said Vettese. What Seif was trying to solve for is when someone goes from earning an income and a paycheck to being retired and having to receive a retirement income. He wanted a solution that provide the security, knowledge, and confidence no matter how long a retiree lives.” The Purpose longevity pension fund is an income-for-life mutual fund designed for Canadians in retirement. Designed similar to a defined benefit pension, the fund incorporates longevity risk pooling to provide lifetime income to Canadian retirees. It also offers flexibility as investors can redeem and invest more at any time. It is a single ticket solution for both segments of a person’s life ‒ an income-for-life decumulation feature that provides monthly lifetime distributions when investors are 65 years old and older, while investors younger than 65 can save money pre-retirement. When they turn 65, the transition between saving and receiving a lifetime income happens automatically without triggering a taxable event.
Nature-Related Risks Assessed
A market-led initiative to help businesses assess emerging nature-related risks and opportunities has launched with backing from global money managers, banks, and governments. The ‘Taskforce on Nature-related Financial Disclosures’ aims by 2023 to create a framework for use by organizations in reporting and acting on nature-related risks. The framework will help to support a shift in global financial flows toward nature-positive outcomes and give firms an overall picture of their nature-related risks. More than half of the world’s economic output, equivalent to $44 trillion, is moderately or highly dependent on nature, it says. Therefore, 83 per cent of wild mammals and 50 per cent of plants becoming extinct “represents significant risk to corporate and financial stability,” while on the opportunities side, transitioning toward “nature-positive outcomes” could generate up to $10.1 trillion in annual business value and create 395 million jobs by 2030. The task force will build on the ‘Task Force on Climate-related Financial Disclosures,’ which sets out recommendations for companies and financial institutions in terms of disclosing environmental risks.
PSP Gets Triple A Rating
Fitch Ratings has assigned a long-term issuer default rating (IDR) of ‘AAA’ and a short-term IDR of ‘F1+’ to the Public Sector Pension Investment Board (PSP) and its debt-issuing subsidiary, PSP Capital, Inc. The rating outlook is stable. The ratings reflect its exceptionally strong asset over collateralization and liquidity levels, creditor priority of debt holders to amounts coming due under the relevant pension plans, the captive nature of asset inflows, experienced management team, solid long-term investment track record, strong corporate governance, and a supportive regulatory framework. Ratings also reflect its role as an investment manager, which means it is not directly responsible for the payment of pension obligations. Fitch believes this profile is incrementally favourable relative to peers that are pension funds. The stable outlook reflects Fitch’s expectation that PSP will maintain exceptionally strong asset overcollateralization and liquidity over the outlook horizon and exhibit long-term investment performance consistent with its benchmarks and reference portfolio. It also reflects an expectation that PSP will continue to operate against the backdrop of a stable operating environment in terms of sovereign credit risk, country ceiling risk, and the legal and regulatory environment.
Inflation Wild Card Remains
While Canadian government bonds rallied modestly in the second quarter, the inflation wild card remains, says a FTSE Russell ‘Fixed Income Insight Report.’ The bond market rally in May was led by long real return bonds. After the brutal re-pricing of inflation risks in the first quarter, U.S. Fed reluctance to taper quantitative easing (QE) quickly, despite the Bank of Canada move in April, helped stabilize sentiment.
RI Essentials Offered By RIA
The Responsible Investment Association’s ‘RIA Digital Academy’ is an online learning platform for professionals to strengthen their knowledge of responsible investment (RI). ‘RI Essentials for Investment Professionals’ was developed in collaboration with the Institute for Sustainable Finance, which is based at the Smith School of Business at Queen’s University. The course gives financial professionals a broad overview of key concepts, issues, strategies, frameworks, and trends in responsible investment. It can be completed in 10 to 15 hours of study time. Information is at https://www.riacanada.ca/news/ria-launches-digital-academy/
Ontario Teachers’ Takes Ownership Of Enwave
The Ontario Teachers’ Pension Plan and IFM Investors have officially taken ownership of Enwave. Whether it’s capturing and reusing waste heat from sewers, developing an ice battery to utilize off-peak renewable energy, or integrating renewable electricity solutions into community energy grids, Enwave’s projects are customized to maximize the benefit for customers and provide flexibility to evolve into the future. Building on its strong foundation, it is focused on executing an expansion strategy based on scaling its low-carbon solutions in both existing markets and new geographies, with a focus on the United States and Canadian markets.
Ferri Has New Role
Forum 2021 Goes Virtual
Roy Sauderson, chief learning officer at Engage2Excel Group, will examine ‘Real Recognition in a Virtual Word’ and New York Times bestselling authors and global leadership experts Adrain Gostick and Chester Elton will discuss ‘The Future of Work’ in keynote sessions at ‘Forging Ahead,’ the virtual ‘CPBI Forum 2021.’ Sessions will look at topics such as the relevancy of defined benefit pension plans today, rethinking obesity in the workplace, and searching for yield in fixed income. It takes place June 14 to 18. Information is at http://www.cpbi-icra.ca/Events/Details/National/2021/06-14-CPBI-FORUM-2021
BMO Earns RIA Awards
BMO Global Asset Management’s ‘MyESG Campaign: Aligning Beliefs and Investments’ is the winner in the ‘Market Education (Institutional Investors & Financial Institutions)’ category in the Responsible Investment Association’s ‘2021 leadership awards. The awards recognize the contributions of RIA members in advancing responsible investment (RI) in Canada. It also earned the award for stewardship by institutional investors)’ for its ‘Diversity and inclusion (D&I) engagement in Canada: moving beyond gender’ project. The integration for institutional investors award was earned by the British Columbia Investment Management Corporation (BCI) ‘BCI’s ESG Risk and Opportunities Framework’ project while the SHARE (Shareholder Association for Research & Education) and Atkinson Foundation project ‘Valuing Decent Work’ was winner in the service leadership by service providers)’ category. The awards were launched in 2020.
Institutional Use Of OCIO Grows
More institutional investors are looking to access outsourced chief investment officer (OCIO) investment solutions as they continue to grapple with market volatility and try to achieve investment goals in a prolonged low real interest environment. As a result, assets managed by Mercer’s investment solutions and OCIO (outsourced chief investment officer) reached $390 billion as of March 31. Originally developed to support the asset management needs of defined benefit pension funds, services have gained traction among other asset owners including endowments, foundations, insurers, wealth managers, not-for-profit healthcare organizations, and defined contribution asset pools. Almost 50 per cent of growth over the last year came from non-defined benefit pension assets.
Europe Emerges From Lockdowns
European retail sales, U.S. jobs, and inflation, are just a few of the things Kristina Hooper will be watching closely in June. Invesco’s chief global market strategist says Europe is emerging from lockdowns, so its economic progress will be gauged. It is encouraging to see that the ‘ifo Business Climate Index’ for Germany rose from 96.6 in April to 99.2 in May ‒ the highest level since May 2019 ‒ showing German companies are not only pleased with their current situation, but are optimistic about the future. In addition, Google mobility data indicates that the eurozone is moving toward a more normal environment with increasing foot traffic at retail stores and restaurants. However, she will want to see confirmation in retail sales as well as the Eurozone Service Purchasing Managers’ Index (PMI). In the U.S., the April jobs report was very disappointing and the whispers suggest that May’s jobs report may be a flop as well. Official expectations are for approximately 600,000 non-farm payrolls created as the U.S. economy continues to recover and Americans are becoming increasingly willing to return to work. Interestingly, last week the Dallas Fed put out a research note arguing that the labour market is already tighter than most economists believe, she says. Their argument was based on the view that while there are still 8.5 million fewer people employed now than before the pandemic, the Dallas Fed expects less than half of those to return to employment, with many others having chosen to retire. As well, there are several different kinds of inflation expectations: consumer and business expectations, economists’ forecasts, and inflation expectations extrapolated from financial instruments. Consumer inflation expectations used to be of low importance because they have been relatively low for years. However, things have changed in recent months and U.S. consumers seem very aware of high prices now. It should matter to the Fed if consumer inflation expectations remain higher ‒ one key rationale for keeping rates low has been that “inflation expectations are well-anchored” ‒ so “we will want to follow this closely,” she says. While she has no crystal ball, a correction is always a possibility, especially given the advances the stock market has made in the last year. But, the potential for a correction this summer should not change anything investors with a long time horizon are doing.
CDPQ Increases Stake In Energir
The Caisse de dépôt et placement du Québec (CDPQ) has increased in its majority interest in Énergir through the acquisition of Enbridge’s 38.9 per cent interest in Noverco Inc. by Trencap L.P. Following this transaction led by CDPQ, Trencap will own 100 per cent of Noverco, which owns 100 per cent of Énergir. CDPQ currently owns 64.74 per cent of Trencap, alongside minority limited partners. With assets of over $8 billion and 530,000 customers across Québec and the northeastern United States, Énergir is a diversified energy business, with half of its assets now involved in the production and distribution of electricity and renewable energies and in providing energy services. The main distributor of natural gas in Québec, Énergir also produces electricity in the province from wind power through joint-venture companies.
De Rango Has New Role
Drug Trends Discussed
‘Drug Trends and More: A Discussion on Improving Value on Drug Spend with Industry Leaders’ is the focus of a Benefits Breakfast Club session. Jeff Boutillier, general manager, pharmacy, and chief clinical officer with Express Scripts Canada, will explore the ‘2021 Express Scripts Prescription Drug Trends’ report, focusing on some specific disease trends, the impact of COVID-19, and new innovations in detecting nonadherence trends. Then, a panel of Boutillier; Mike McClenahan, managing partner of Benefits By Design (now part of People Corporation); Paul Henricks, associate director, data innovation and insights, at PDCI Market Access; and Mike Cavanagh, pharmacist/owner, Pharmasave Kawartha Lakes Pharmacy, and co-chair of the Pharmacy and Health Insurance Steering Coalition (PHISC); will explore the impact of compliance and adherence, step therapy, and plan maximums and pooling limits, as well as other industry trends to manage drug spend without compromising quality care. It takes place June 17. Information is at https://www.connexhc.com/product/bbc-webinar-national-and-regional-drug-trends/?mc_cid=f7270a65e5&mc_eid=7e402198d2
Commuted Value 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 June 2021 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)
You can use this spreadsheet to compare the interest rates which you may have calculated and/or you can download the spreadsheet to your own computer. Another actuary has already provided a peer review of the updated rates in this spreadsheet and determined that he/she agrees with the results.
Climate Change To Increase Health Costs
Climate change will worsen health inequities and significantly increase costs to Canada’s health system and economy without targeted government action, says a report from the Canadian Institute for Climate Choices. ‘The Health Costs of Climate Change: How Canada Can Adapt, Prepare, and Save Lives’ finds that climate change represents a significant public health threat that will disproportionately harm those most vulnerable. Assessing a range of possible impacts under both low- and high-emissions scenarios, the report finds that the impacts of climate change could cost Canada’s healthcare system billions of dollars and reduce economic activity by tens of billions of dollars over the coming decades. Adding the value of lost quality of life and premature death, the societal costs of climate change impacts on health will amount to hundreds of billions of dollars. It concludes that responding effectively to climate-related health threats will require Canadian policy-makers to expand their focus beyond considering climate and health policy in isolation. Threats to health from climate include an increase the average number of dangerously hot days from 75 to 100 days each year, on average, by later this century. As temperatures increase, ground-level ozone (a component of urban smog) is projected to worsen under all scenarios. Towards the end of the century, the report estimates that ground-level ozone could cause over a quarter of a million people per decade to be hospitalized or die prematurely, with an annual cost of about $250 billion. Under the high-emissions scenario, climate change will lead to a projected loss of 128 million hours of work annually by the end of the century due to heat impacts on productivity. This is the equivalent of 62,000 full-time jobs lost, or $14.8 billion per year in lost productivity. In addition to the estimated damages, the costs of health-related climate impacts that are difficult to measure today may far exceed those considered in this report. Climate change is likely to impact people’s mental health, lead to ecosystem changes, and negatively impact cultures and ways of life. These losses may not be on balance sheets or in government budgets, but to overlook them risks ignoring some of the most critical impacts of climate change on health and well-being, it says.
Early Benefits Protected Families
Early benefits in Canada were intended to protect the families of employees against a catastrophic such as a loss of earnings due to disability or the death of the husband who was typically the breadwinner, says Lizann Reitmeier, health practice leader at Buck. She told the Toronto Chapter of the International Society of Certified Employee Benefit Specialists’ ‘Fundamentals of Group Benefit Plans 2021’ session on ‘Ancillary Benefits’ this was “to keep the widow and her six children from showing up at the door” of the company. As time went on, benefits were extended to provide a tax effective compensation method. Most employees do pay tax on their employer’s contribution to the plan, but paying income tax on the contribution is a lot less than paying the contribution “so it’s so a bit of a win win” as the premium is tax deductible for employers. “It’s a way to enhance compensation, without actually giving people money that attracts tax,” she said. This was became more popular in the 1970s when inflation was rampant and there was a lot of programs around to limit the rate of inflation. For example, wage controls meant employers could not give employees significant wage increases, “but what they could do was expand benefits and this is actually when benefits plans became quite common in Canada,” she said. Today, benefit plans are under pressure from increasing costs, due to changing tax to improving technology and the aging population. “Costs are weighing down many employer plans,” she said.
Damage From Financial Stress Being Recognized
For employers, the damage caused by financial stress in their workforces is finally getting attention, says Alyssa Hariton, an associate partner for LifeWorks Inc. In the article ‘Helping Employees Achieve Financial Well-Being In The Digital Age,’ she says the link between employees’ financial health, their productivity, and an organization’s bottom line is now well documented. Employers are starting to recognize that they play a critical role, and have a vital interest, in the financial well-being of their employees.
Value Captures Attention
Value stocks have captured investor attention this year with the Russell 1000 Value Index recording an 11.26 per cent total return, far outpacing the 0.94 per cent gain of the Russell 1000 Growth Index as of March 31, 2021. But, Martin Romo, equity portfolio manager at Capital Group, wonders if the tilt toward value-oriented shares will prove to be a lasting one. In a target rich environment, there are opportunities to invest in fast growing companies as well as classic cyclical companies, he says.
Lowe’s Cos Settles 401(k) Lawsuit
Lowe’s Cos has settled a lawsuit filed by a participant in its 401(k) plan who alleged the company and its administrative committee breached their fiduciary duties in the plan’s offering of an investment option. The settlement provides for a $12.5 million settlement fund from which participant class members are entitled to distributions. The suit alleged that Lowe’s, its administrative committee, and investment consultant Aon Hewitt Investment Consulting (now Aon Investments USA) had breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 by offering the fund. Aon was accused of a conflict of interest in recommending a proprietary fund for the plan, charging it improperly, and did so to further its own financial interests instead of the interests of the plan’s participants, said the original lawsuit. No settlement has been reached with Aon.
Corey Becomes Executive Director
Benefit Trends Examined
Dr. Dorian Lo, president of Express Scripts Canada, and Barbara A. Martinez, national practice leader, drug solutions, at Canada Life, the featured speakers the Benefits and Pensions Monitor Meetings & Events webinar ‘Benefit Trends & Insights.’ Lo will discuss ‘Prescription Drug Trends and Mental Health Claims: Stem the Tide’ where he will provide insight into mental health prescription drug trends and outline solutions that could help stem the tide of the growing mental health challenge by improving the care provided. Martinez will focus on ‘Drug expenditure trends in group insurance plans and how market dynamics impact the drug plan bottom line.’ This will include a look at biosimilar drugs and provide insight into strategies that allow biosimilars to help manage drug plan spending in group insurance plans. It takes place June 10. Information is at https://register.gotowebinar.com/register/4153797014730228492
Biosimilar Initiative Impacts Drug Plans
British Columbia’s biosimilars initiative has had a profound impact on private drug plans, says a Telus ‘Health Benefits Hub.’ By the end of 2020, biosimilars’ share of costs among biologic reference drugs had more than quadrupled to 69 per cent for private plans. This is a significant increase from 15 per cent in May 2019 when the government first announced its program. Its health claims data for private drug plans suggests sizable savings, given that biosimilars are priced 20 per cent to 50 per cent lower than the reference biologic. “Even though it is a policy that applies only to public plan claims, it appears that private plans are following suit,” says Shawn O’Brien, principal, data enablement and HBM product, TELUS Health. The province’s pharmacare program likely motivated private drug plans to adopt their own switching policies to avoid having to take on the full cost of a reference biologic for patients who turn to their private plan for coverage. Changes in prescribing behaviour is another important factor behind biosimilars’ growing share of the private claims for biologics. “The public initiative in B.C. has influenced physician prescribing habits for all patients and we can likely expect the same result in other provinces as other public payers implement switching policies,” he says.
Group Insurance Must Be Incidental
Group insurance must be incidental to the group, says Maria Covone, group underwriting consultant, group underwriting, Sun Life, to ensure there is no exposure to anti-selection. She told the Toronto Chapter of the International Society of Certified Employee Benefit Specialists (ISCEBS) ‘Group Underwriting 101’ session at its ‘Fundamentals of Group Benefit Plans 2021’ that this means is a group cannot come together, solely for the purpose of securing group insurance ‒ there must be another purpose to the group. “If we agreed to allow groups to come together for the sole purpose of securing group insurance, we would be exposing ourselves to anti selection. Basically, the success of a group plan depends on having a good mixture of healthy and some not-so-healthy plan members,: she said. If the group is organized mainly for the purpose of obtaining the insurance, the poor risk individuals tend to seek membership, whereas the healthier persons ‒ because they don’t feel that there’s a risk and a need for the insurance ‒ won’t join the group. As well, to ensure that there is an ongoing acceptable spread of risk, a regular inflow of new and younger members and a regular outflow of older members is needed. Any turnover within a 10 to 20 per cent range is conducive to predictable experience in managing costs. If the turnover is too high, future costs cannot be predicted.
BCI Makes Progress On Climate
The British Columbia Investment Management Corporation (BCI) ‘2020 ESG Annual Report’ demonstrates the progress it has made on achieving the goals of its climate action plan. Over the past six years, it has transformed into an active, in-house asset manager and increased the capabilities of its internal team. Its longstanding commitment to ESG has also evolved into a co-ordinated and consistent approach that integrates ESG across the corporation. Activities to achieve its climate action plan goals include expanding its carbon footprint reporting to include all asset classes; growing its measured exposure to climate-related investment opportunities to $3 billion; introducing updated proxy voting guidelines raising its expectations on addressing climate change risk and disclosure; and leading or co-leading on engagement with four North American companies in the oil and gas and mining industries as part of the Climate Action 100+ initiative.
Support Reduces MSDs
Amazon employees now have access to a program providing them with scientifically proven physical and mental activities, wellness exercises, and healthy eating support. ‘WorkingWell in Canada’ is designed to help them recharge, reenergize, and ultimately reduce the risk of injury. The program is part of the company’s investment of more than $300 million into safety projects across North America in 2021. The program was developed in collaboration with employees from within its operations. Aspects of WorkingWell were piloted in the U.S. in 2019 and the program has since expanded to 350 select sites in North America and Europe. By the end of 2021, it will expand further to cover all of its operations network in the U.S. and Canada, with the aim of cutting recordable incident rates by 50 per cent by 2025. Similar to other jobs of this kind, about 40 per cent of work-related injuries at Amazon are musculoskeletal disorders (MSDs), which include sprains or strains caused by repetitive motions, and they’re more likely to occur among newer employees, many of whom might be working in a physical role for the first time. Pilots of the program have reduced these injuries and have had a positive impact on regular day-to-day activities for employees outside of work. Along with other company initiatives focused on early MSD prevention, it has helped decrease MSD-related injuries by 32 per cent from 2019 to 2020, it says.
Vigilante Investors Could Be Burned
Many vigilante investors who are being pulled into the social media frenzy to buy stocks could end up “financially burned,” says Nigel Green, the chief executive and founder of deVere Group. His comment comes after shares of AMC jumped almost 40 per cent last week as investors on the Reddit WallStreetBets board were once again pushing the stock in a bid to hurt short-sellers who have bet against the theatre operator. It follows similar moves that started in January when activist investors on Reddit pumped other out-of-favour firms including GameStop and BlackBerry. He says, “There’s a certain vigilante mindset amongst those traders being drawn into this social-media frenzy to pump certain stocks. They seem to believe they’re in a David and Goliath-style battle against Wall Street and, judging by some of the comments on the forum, it appears kind of personal.” These forums have tapped typically inexperienced, younger people who might not necessarily have “the financial resources to be resilient against usually highly speculative and volatile investments,” he says.
Bonds Prove Worth Against Crashes
Canadian investors ignore bonds and global equities at their own peril, says Canada market research from Morningstar Indexes. It found the divergent behaviour of stocks and bonds in the first quarters of 2020 and 2021, as well as previous crises, demonstrates the value of asset class diversification. High-quality bonds ‒ in Canada and globally ‒have repeatedly proved their worth during equity market crashes. As well, equity market behaviour in recent years has shown the benefits of global diversification for a Canadian investor. Canadian market dynamics argue for investors to minimize home country bias and maintain exposure to global assets. Dan Lefkovitz, a strategist, at Morningstar Indexes, says, “Spreading one’s bets is typically a good strategy, particularly in Canada due to its relatively narrow sector representation and small percentage of global market capitalization.”
Doughty Elected CLHIA Chair
Michael Doughty, president and chief executive officer of Manulife Canada, is chair of the Canadian Life and Health Insurance Association (CLHIA). As a member of Manulife’s executive leadership team, he leads the company’s growth strategy across the Canadian market. Prior to his current role, he served as interim president and CEO at John Hancock, Manulife’s U.S. segment. He also formerly led its group savings and retirement business in Canada.
Changes Made At Owens
Michael Owen is chief executive officer and Steven Owen is president of Owen & Associates. Michael Owen, who founded the firm in 1998 and served as its president, has lead the company’s business strategy and growth. With more than a decade of experience, including several years in the accounting industry, Steven Owen will focus on building upon the high-quality services and support that clients rely on for customized and innovative solutions for all their benefits needs. He previously served as vice-president of operations.
Sun Life Shares Savings Insights
‘Highlights from Designed for Savings 2021: A preview of actionable insights’ will be the focus of the June 8 Benefits and Pensions Monitor Meetings & Events webinar. Sun Life’s Eric Monteiro, senior vice-president, group ‘retirement services, and Kate Nazar, vice-president strategy and market development, group retirement services, will share some first-time insights from its ‘Designed for Savings 2021’ report on plan member behaviour, including contribution, investment, and withdrawal patterns over the past year; which asset class yielded ‘excess returns’ over the past year; whether sponsors are making progress on reducing the gender savings gap; and new innovations to address plan member priorities and drive better outcomes. Information is at Designed For Saving