DB Plans Face Funding Contributions

Defined benefit pension plans would have to increase their current service funding contributions by close to 20 per cent based on lower expectations of future long-term returns on the asset mix underlying the ‘Mercer Pension Health Index’ in 2019. The solvency position of Canadian DB pension plans dropped only slightly in the third quarter of 2019. The index, which represents the solvency ratio of a hypothetical plan, decreased to 105 per cent on September 30 down from 106 per cent at the end of the second quarter and surprisingly up from 102 per cent at the beginning of the year, despite all-time low long-term interest rates during the quarter. The median solvency ratio of the pension plans of Mercer clients was at 94 per cent, down from 95 per cent on June 30, and up from 93 per cent at the end of 2018. Positive equity market performance throughout 2019 and a September rebound in long-term rates prevented a potential 14 per cent decline in the index at the end of August driven by the lowest yields on long-term bonds in 60+ years. A remarkable drop of 74 basis points in long-term Government of Canada bond yields at the end of August drove a 15 per cent increase in liabilities in 2019. “Most DB pension plans in Canada weathered the storm over the summer and some came out stronger, but there are worrisome signs on the horizon,” says Andrew Whale, a principal in Mercer Canada’s financial strategy group. The ultra-low level of interest rates and uncertainty in the equity markets have significantly lowered the expectations for future long-term asset returns in a typical DB pension plan’s portfolio. This perfect storm will likely result in higher cash and financial reporting costs for many plan sponsors in the coming years. In addition to any existing deficit funding, a DB pension plan with a typical asset mix could face an increase in its current service funding contributions by 15 per cent to 20 per cent based on recent decreases in the expected rates of return.

ACPM Questions OSFI Benefit Reduction

The Association of Canadian Pension Management (ACPM) says a proposal for reducing benefits in defined benefit pension plans in the Office of the Superintendent of Financial Institutions draft ‘Instruction Guide’ needs clarification of “would” and “could.” These have distinct legal meanings, it says. Specifically, “would” has been interpreted by courts and others to require that there be a reasonable basis to believe that something will happen; whereas “could” merely implies a possibility that something may happen. As well, s. 10.1(2)(a) protects from reduction “pensions benefits accrued before the date of the amendment.” These words imply that the effect of an amendment be ascertainable on the date of the amendment. In the context of an amendment that deals with a pension benefit that is conditional or contingent on future unknowable factors, like CPI, an amendment that does not reduce a member’s pension benefit credit and therefore is reasonably likely to provide an equivalent pension benefit to the member over the long term following the amendment should not be considered a reducing amendment. It recognizes that a reducing amendment may be used to correct instances of plan underfunding. However, it says OSFI should not always require evidence of financial need in order to use its authority to allow a reducing amendment. Instead, it encourages OSFI to consider the wider context within which the amendment is occurring. For example, as a means of encouraging annuity purchases, OSFI could provide a framework for reducing amendments that occur in the context of an annuity purchase where the amendment addresses a benefit design that is expensive or impossible to replicate through an annuity purchase.

CDI Allocation Doubles

The average allocation to cashflow driven investment (CDI) eligible assets, such as infrastructure and private and multi-asset credit, has more than doubled since the beginning of 2018, says an analysis based on data drawn from RiskFirst’s risk management platform PFaroe. Over the recent years, an increasing number of asset managers and consultants in the defined benefit pension space have been advising clients on the merits of incorporating CDI strategies in their broader portfolio allocation strategy. CDI matches the timing of the underlying cash inflows on the asset side with the cash outflows on the liability side, in an attempt to provide better returns, on a risk-adjusted basis, than the traditional portfolio asset combinations of equities and bonds. The analysis could suggest that investors and consultants are anticipating a recession in the next 12 to 24 months, making the case for steady cashflow and fixed income assets stronger to ensure a well-funded DB pension plan. “While no one knows for a fact when the next recession will kick in, our data shows that one thing is certain: CDI is not just an idea, but a strategy whose time has come. As CDI becomes more important, ready access to asset and liability data and being aware of both broader asset and liability trends is becoming increasingly integral to both the asset owner and the growing asset manager client base,” says Matthew Seymour, CEO at RiskFirst.

Mental Health Centre Refreshes

The Great-West Life Centre for Mental Health in the Workplace is now Workplace Strategies for Mental Health. “For over a decade, Canadians have known our organization as a leader and catalyst focused on enhancing workplace mental health and well-being for everyone at no cost,” says Mary Ann Baynton, director of strategy and collaboration at Workplace Strategies for Mental Health. “Now is the perfect time to refresh our look and feel as it coincides with Healthy Workplace Month as well as the fact that Canada Life, which funds all our free resources, rebranded earlier this year. Our new brand better aligns with our website address, making it easier to find resources to make positive change.” The refreshed brand identity will be rolled out to existing online and social media platforms. It will also be incorporated into new communication materials and tools as they are developed. The next part of the organization’s journey includes offering a simplified website experience, slated to launch in fall 2020.

Slavery Initiative Sets Out Actions

An international initiative has released a report recommending actions for the financial sector to mobilize against modern slavery and human trafficking. The Financial Sector Commission on Modern Slavery and Human Trafficking ‒ known as the Liechtenstein Initiative ‒ is a public-private partnership between the government of Liechtenstein, the Australian Department of Foreign Affairs and Trade, and the Center for Policy Research at United Nations University, a UN think tank. Its report which includes 30 separate actions for the financial sector ‒ including investors, insurers, regulators, and other sector representatives ‒ calls for investment in innovation for prevention, provision, and enablement of effective remedies for modern slavery and human trafficking; enforcement of laws; creative use of leverage to mitigate and address modern slavery and human trafficking risks; and knowledge of those risks. It also includes an implementation toolkit to assist financial institutions in putting those themes into action.

SSQ Covers Genetic Tests

SSQ Insurance now offers coverage of pharmacogenetic tests as an option in group insurance. These tests help analyze how a person’s DNA will react to a prescription drug, making it easier for attending physicians to identify the most appropriate drug for each patient. The coverage aims to make life easier for its insured customers by helping them access optimal treatment and for its policyholders by making it possible to better control the cost of drugs. “Since the treatment of disease is evolving toward personalized solutions for individual patients, pharmacogenetics is quickly becoming a must,” says Éric Trudel, senior vice-president of strategy and product management, at SSQ Insurance. At the policyholder’s request, and in accordance with a reimbursement maximum they will choose, the new clause may be added to their health insurance coverage. To be eligible, pharmacogenetic testing must be prescribed by a physician and carried out in a duly authorized laboratory in Canada. The results of genetic tests are used to identify the most appropriate drugs for the treatment of such conditions as attention deficit disorder (ADD), psychological illnesses, and chronic diseases like hypertension and chronic pain.

‘ESG Indicators’ Foster Engagement

Preqin’s ‘ESG Indicators’ intends to foster greater transparency and engagement on environmental, social, and governance (ESG) factors. Its establishes a common benchmark for measuring ESG factors across funds over time and enables investors and fund managers to analyze their portfolios against their ESG and financial performance targets. The indicators leverage widely accepted frameworks, including the Sustainability Accounting Standards Board’s (SASB) factors and the UN Sustainable Development Goals Index. It applies those frameworks to its proprietary industry taxonomy, private capital deals data, and fund-level performance database. This allows it to generate baseline ESG scores for a portfolio, based on the industries and geographies of the underlying assets.

CPPIB Develops San Jose Property

Boston Properties, Inc., a publicly traded developer, owner, and manager of Class A office properties in the United States, and the Canada Pension Plan Investment Board (CPPIB) have formed a joint venture to develop Platform 16, a 1.1-million-square-foot Class A urban office campus near Diridon Station in downtown San Jose, CA. CPPIB will have a 45 per cent ownership interest in the joint venture. Boston Properties will retain the remaining 55 per cent ownership stake and provide customary development, property management, and leasing services.

Bugeja Has New Role

Micheal Bugeja (CEBS) is senior benefits analyst at People Corporation. He joined the firm in 2016 as a benefits analyst from Great-West Life where he was a financial analyst.

Ontario Looks Toward 2020

CPBI Ontario will be ‘Looking Towards 2020: The Challenges for a New Decade.’ Thought leaders including Ali Ghiassi, vice-president of industry affairs and government relations at Canada Life; Karen Millard, a senior director at Willis Towers Watson; Fabrice Morin, executive vice-president, Canadian operations, at the Great-West Life Assurance Company, London Life Insurance Company, and the Canada Life Assurance Company; and Mike Sullivan, adjunct professor at the University of Toronto; will review and discuss changes going into 2020. It takes place November 14 in Toronto, ON. For information, visit Towards 2020