February 22 Benefits and Pensions Monitor Daily News Alerts

Caisse Builds Resilient Portfolio

The Caisse de dép?t et placement du Québec will continue to build a more resilient portfolio to withstand recent market volatility. “We are facing an unusual environment,” says Michael Sabia, president and chief executive officer of the Caisse. “Markets are grappling with, on one hand, reasonably solid economic fundamentals, based on synchronized growth worldwide and, on the other hand, investor concerns over how changes in monetary policy to curb inflation will impact interest rates. After years of performance bolstered by central banks, it’s no surprise that the normalization process triggers market reactions like those we have seen recently,” he says. Its financial results for the year ended December 31, 2017, show the annualized weighted average return on its clients’ funds is 10.2 per cent over five years and 9.3 per cent in 2017. For the five-year period, its eight main clients received returns between 11.5 per cent and 8.7 per cent, reflecting their differing investment policies and tolerance for risk. For 2017, their returns were between 10.9 per cent and eight per cent. Net assets totaled $298.5 billion, increasing by $122.3 billion over five years, with net investment results of $109.7 billion and $12.6 billion in net deposits from its clients. In 2017, net investment results were $24.6 billion. Net deposits totaled $3.2 billion.

Impact On Jobs Underestimated

The federal government has likely underestimated the negative impact on jobs of the planned Canada Pension Plan (CPP) increases, says an analysis from the Canadian Federation of Independent Business (CFIB). Starting in 2019, CPP premiums will rise for five straight years, followed by another two years where the maximum amount of income CPP premiums are levied upon will increase. ‘Forced Savings: the hidden costs of expanding public pensions’ found that the CPP hike will initially cost 64,000 fewer jobs, 4.5 times greater than the federal government's projection of job losses. The analysis also shows that negative job impacts will last until the late 2020s, after which the impacts transform into constrained wage growth and higher government deficits. It also says the pension increase will result in slower wage growth. Household disposable incomes will drop by $700 in 2025 (in today's dollars) and remain in the red at negative $400 as late as 2040.

Life Expectancy Decline Not Necessarily Good News

U.S. defined benefit plan sponsors should not be tempted to conclude that a National Center for Health Statistics (NCHS) report showing that life expectancy at birth declined for the second consecutive year is good news for pension plan costs, says Segal Consulting. DB plan sponsors should look beyond the headlines as life expectancy continues to improve for retirement-age Americans. The NCHS report says between 2015 and 2016, death rates increased significantly for the under-45 age groups studied. In contrast, death rates decreased for the post-65 retirement-age groups. Segal says as additional experience emerges, there may be refinements necessary in actuarial assumptions for pension plans, but they should be based on longer-term trends.

Investors Braced For Volatility

Volatility finally roared back to abnormally tame markets, but most institutional investors were already bracing for impact and their efforts to diversify and build durable portfolios may now pay off, says a survey by Natixis Investment Managers. Seventy-eight per cent of institutional investors expected stock market volatility to spike in 2018 and they are making opportunistic allocations to active management and alternative investments in order to help meet average long-term return assumptions of 7.2 per cent this year. Seven in 10 investors agreed that the addition of alternatives is important for diversifying portfolio risk and 76 per cent think the current market favours active managers. And while alternative investments can present a range of portfolio risks, 74 per cent say the potential returns of illiquid investments are worth the risk. That said, two-thirds report that solvency and liquidity requirements have created a strong bias for shorter time horizons and highly liquid assets and hidden risks lurking within the dynamic macro-economic and regulatory market make it even more challenging for institutions to balance short-term opportunities and long-term objectives.

PIAC Fears Mismatch

While the Pension Investment Association of Canada (PIAC) appreciates the policy intent of the HM Revenue & Customs’ ‘Taxing gains made by non-residents on UK immovable property’ proposal, it says the document can create a mismatch during the disposal of pension plan holdings in the UK. The policy says an overseas pension fund should not be subject to UK tax on the disposal of an investment in UK property where that pension fund is beneficially entitled to the gain. However, for a number of commercial and legal reasons, Canadian pension funds are unlikely to hold property directly and instead may utilize various holding subsidiaries to directly own UK real estate. Disposing these holdings would be taxable under the proposals. It also has concerns about the definition of an overseas pension scheme which it describes as multi-layered and complex. Furthermore, the definition of an overseas pension scheme contains different criteria from those required to be a qualifying institutional investor. PIAC believes using multiple definitions to identify investors, who are expected to meet the same policy objective, creates unnecessary complexity and a compliance burden.

Quebec Employers Face Additional Accommodation Duty

Quebec employers have an additional duty when an employee returns to work after having suffered a work-related injury, says an ‘Employment & Labour Bulletin ? Blakes Business Class.’ A Supreme Court of Canada (SCC) decision in Québec (Commission des normes, de l’équité, de la santé et de la sécurité du travail) v. Caron confirms that as a general rule, employees who suffered a work-related injury and become able to carry on their pre-injury employment within one or two years (depending on the size of the employer) are entitled to be reinstated or be reassigned. Equivalent employment means employment of a similar nature (professional qualifications required, wages, social benefits, etc.) to the employment held by the workers when they suffered the work-related injury. In practice, in accordance with the judgment, an employer could be required to determine whether adjustments or changes can be made to certain positions when an employee who has suffered a work-related injury is able to return to work, even if there is no equivalent or suitable employment. According to the case law regarding accommodation, the employer would be required to agree to such adjustments or changes, short of undue hardship, it says.

Retirees Struggle With Debt

A worry-free retirement may be a thing of the past as Canadians struggle to manage debt, says the Sun Life ‘Financial Barometer.’ It found one-in-four (25 per cent) retirees are living with a mortgage and unpaid credit cards. In fact, one-in-five (20 per cent) retirees are still making mortgage payments and they still use credit in some of the same ways they did before retirement. It says 66 per cent have unpaid credit cards; 26 per cent are making car payments; seven per cent have unpaid health expenses; seven per cent owe money on holiday expenses or vacation property; and six per cent haven’t paid off home renovations.

Revised Guide Posted

OSFI has posted a revised instruction guide on completing the ‘Actuarial Information Summary (AIS)’ to assist administrators of defined benefit pension plans with provisions registered or having filed an application for registration under the Pension Benefits Standards Act, 1985. A revised AIS has also been posted to be consistent with the form accessed through the Regulatory Reporting System which was updated in November 2017. The revised instruction guide updates the previous one published in June 2015. The revisions to the instruction guide reflect the recent changes made to the AIS and include modifications that streamline the information and make it more user-friendly.

Pike Efforts Honoured

Jagoda Pike, president and CEO of Homewood Health, has been honoured as a ‘Woman of Distinction’ by the Guelph Region YWCA’s 2018 'It Takes a Village' campaign. It recognizes remarkable role models, pioneers, and outstanding achievers. Prior to joining Homewood Health, she was the first woman to serve as president of Star Media Group and publisher of the Toronto Star. Since joining Homewood in 2012, she has guided the organization's growth to become a national leader in mental health and addiction care, while also developing a research mandate working with the Homewood Research Institute.

Considerations For Medical Cannabis Presented

Practical considerations for plan sponsors to begin thinking about as they develop policies and coverage of medical cannabis will be presented by Mike Sullivan, CEO and co-founder of Cubic Health, at the Benefits and Pensions Monitor Meetings & Events ‘Benefits 2018’ session. It will also feature a discussion on helping workers impacted by mental illness in a helpful and cost-effective way. Sullivan joins Richard Heinzl, global medical director from WorldCare International Inc.; and Sarah Dulong, a mental health claims advisor, and Roger Friesen, director, life and disability claims from Co-operators Life Insurance Company as presenters at the session. It takes place March 20 in Toronto, ON. For information, visit Benefits 2018

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