ALSO INSIDE

6 investmentinsiderUnderstanding the risks and rewards of securities lending

18 qualityoflifeConcierge services are a valuable benefit

28 featurestoryMaking sense of DC investment fees

Benefits celebrate Bollywoodpage 31

By ShEryL SmOLkIN

The Competition Bureau recom-mends that private plan spon-sors embrace strategies such

as preferred provider networks, mail-order pharmacies and patient incentives to get a better deal on generic drugs. However, sponsors and other industry experts say the first step is more transparency regarding the drug supply chain — including kickbacks and rebates to pharmacies and governments.

The Bureau’s 2008 study “Benefitting from Generic Drug Competition in Canada: The Way Forward” says obtaining generic drugs at competitive prices could save pri-vate payers up to $600 million per year, with the potential for hundreds of millions of dollars in additional savings as more major drugs lose patent protection.

The study reveals that despite strong competition in the supply of many generic

FEAturED

Getting a better deal on generics

pENSION FuNDINg

cLAImS ADmINIStrAtION

N.S. valuation proposal is out of tuneBy ShEryL SmOLkIN

A new “accrued benefit” method of valuation for defined benefit pension plans recom-

mended by the Nova Scotia Pension Review Panel is getting mixed reviews from actuaries, who say it will further exacerbate an already uneven pen-sion environment across the country.

Funding in accordance with solvency valuations that test plans against the possibility of immedi-ate windup is currently mandated by all Canadian jurisdictions. DB plans in Nova Scotia that are not fully solvent must have funding in place to achieve full solvency within five years. However, three specific excep-tions have been made for universi-ties, specified multiemployer plans and municipalities.

“Our conclusion was that the existing solvency standard for Nova Scotia was excessively conservative and produced a value that was too

high for the benefits being valued,” says Dick Crawford, an actuary and member of the panel. “At the same time, it excluded a whole bunch of important benefits, like indexing af-ter retirement, and ancillary benefits, such as enhanced early retirement.”

Minimum funding rulesAs a result, the panel has recom-

mended that valuations be made on an accrued benefit basis, which in-cludes consideration of all promises, but will use actuarial assumptions closer to those for going-concern valuations. It is also intended that the rules for minimum DB funding will ultimately be the same for most pension plans subject to the N.S. Pension Benefits Act, with the excep-tion of target-date benefit plans and SMEPPs.

Both surpluses and deficits will be amortized over 10 years with interest, and, on wind-up, plans will have to

COB guideline resolves outstanding questionsBy ANDrEA DAvIS

Coordination of benefits is gen-erally well-understood by plan members, but the Canadian

Life and Health Insurance Associa-tion is hoping its revised Guideline G4 and accompanying consumer brochure will help to resolve any ambiguities,

“It’s not a totally new guideline, but has some revisions, particularly in areas where we were silent and people had questions,” says Irene Klatt, vice-president, health insur-ance, with CLHIA in Toronto.

The original COB Guideline,

published in 1990, was developed to help foster consistency in situations where a person can submit a claim to more than one group plan.

But the growing popularity of health care spending accounts, coupled with changing family dy-namics, created a need to revisit the COB Guideline. With HSAs, “people had an understanding of how they thought that should all work, but we just spelled it out a little more clearly,” says Klatt.

“They haven’t changed the basics,” notes Louis Bernatchez, partner with Morneau Sobeco in Montreal. “Even

March/april 2009 • VOl 6 NO 2

(SEE gENErIcS ON pAgE 25)

(SEE vALuAtION ON pAgE 10)

(SEE cOB ON pAgE 16)

Industry ResourcesResouRce Guide

32 How to reach key EBNC departments and find EBNC advertisers in this issue.

PRovideR PRofiles

33 Thumbnail descriptions and contacts for benefit service providers, organized by service category.

March/April 2009 • Employee Benefit News Canada �

CONTENTSEditor’s Desk4 Drug plan sponsors are getting a raw deal.

Editor’s Inbox5 Temporary solvency relief for DB plans will not be much relief at all.

Investment Insider DB and DC investment trends

6 Securities lending takes a back seat in tough economy.

7 A realistic assessment of the risks and liabilities of your pension plan will get it started on the road to recovery.

Benefits Retirement Retirement savings plans and financial education

8 DB sponsors take small steps to better manage risks in their plans.

9 Should you add a TFSA to your group savings plan? Our experts weigh in.

Benefits Health Health care plans, drug benefits, LTD and wellness

12 Employers adopt high-tech, cost-effective solutions to wellness.

14 Cutting drug plan costs through therapeutic substitution fails in B.C.

Quality of Life Added-value benefits that build loyalty

18 Concierge services free up valuable time for employees.

20 Improving corporate training with video games.

Global Watch Understanding benefits without borders

22 Barack Obama’s plan to revamp U.S. health care.

Who’s News Industry movers and shakers

�1 Benefits celebrate Bollywood.

7

Features24 Getting a better deal on generics

Transparency in the drug supply chain would benefit private drug plan sponsors.

28 Fee disclosure a cloudy issue Better disclosure could put downward pressure on DC fees..

Employee Benefit News Canada is published 6 times a year by SourceMedia, Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 212/803-8200. Subscription Rates: 1 yr Canadian - $49.00CAD, 1 yr US - $39.00US. Publications Mail Agreement No. 40917038. Change of Address: Notice should include both old and new address, including ZIP code. Return undeliverable Canadian addresses to: PO Box 503, RPO West Beaver Creek, Richmond Hill, Ontario L4B 4R6. Employee Benefit News Canada is intended only for employee benefits professionals. POST-MASTER: Please send all U.S. address changes to Employee Benefit News Canada/SourceMe-dia, Inc., PO Box 530, Congers, NY 10920. The publisher does not perform due diligence on the companies or products discussed or advertised in Employee Benefit News Canada. © 2009 Employee Benefit News Canada and SourceMedia, Inc. All Rights Reserved.

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Editor’s Desk 4 March/April 2009 • Employee Benefit News Canada

Passing the drug test

By SHERyL SmOLkIN

Drug plan sponsors in this country are getting a raw deal, and some of them are finally mad enough to do something about it.

Data from the Canadian Institute for Health Infor-mation reveals that private insurers, including group and individual insurance, paid out $7.8 billion in 2007 and their share of prescribed drug expenditures was 34.7%.

While ESI Canada reports that plan designs en-couraging generic substitution helped to mitigate the 7.1% increases in the overall drug spend in 2007, in fact, generic drugs in Canada are still about 112% more expensive on average than the same generics in the United States.

Initially, both private and public pay-ers were in the same boat, because the primary reason for the price differential was manufacturers’ rebates to pharma-cies for stocking generic drugs that were not passed on to either group.

Then several provincial governments began aggressive cost controls in public plans. And lo and behold, their actions drove up prices for everyone else, includ-ing private plan sponsors!

Now granted, we want governments to manage wisely when they spend our tax dollars on health care, but continu-ously downloading costs to companies that are the economic engine we des-perately need to drive us out of this recession doesn’t make a whole lot of sense either.

So how can drug plan sponsors fight back?Mike Sullivan, president of Cubic Health, says first

of all, organizations need to have a better understand-ing of what is going on in their plan.

“They have to understand what they are spend-ing in each jurisdiction, the range of amounts for the same drugs being charged to their plan and how this compares to what governments and U.S. parents are paying,” he says. “I’ll bet both of my arms and legs that if you put 50 very large plan sponsors in a room, they would not be able to answer these questions because they’ve never asked them before.”

Nevertheless, he recognizes that individual plan sponsors do not have the clout or the time to drive the issue. “Many of our people are HR people, and they have lots on their plate.”

That’s why PEI-based drug consultant Hugh Paton is spearheading the Health Plan Sponsor Coalition of Atlantic Canada employers looking for answers. He says: “Our problem right now is we are basically get-ting ripped off for drugs. What I want to do is sit down with government and say, ‘What was your thinking? Why don’t we collaborate — bust out of our silos and change our business together?’”

At the first organizational meeting of the Coalition, held earlier this year, participants represented an an-nual drug spend of over $150 million.

“We had two provincial governments at the table — one representing their public plan for seniors and low income people, the other for their employee plans. There were also three private-sector employers with 10,000-15,000 plan members and several others inter-ested who couldn’t make it.”

Paton is confident that the group can double or even triple its size. “Then we can start to act like a pur-chaser who goes to a garage or buys groceries. He can leave that garage and go to another one if he doesn’t like how they fix his car.”

He also thinks that if the group is big enough, they can challenge how PBMs are adjudicating their claims. “We can say, ‘You are allowing claims to come through at full price with markups on top of that price, and markups on top of the markups, plus dispensing fees,

and we’d like to talk to you about that.’ Maybe we’d like to pay pharmacists for consultative services just like Ontario did, and we’d like to have our PBM structure their remuneration that way.”

The Competition Board’s November 2008 report says Canadian taxpayers, consumers and businesses could save up to $800 million a year if changes are made to the way private plans and provinces pay for generic drugs. The possible reduction in drug costs are particularly large for private payers — businesses, employees and individuals — who account for 52% of generic drug expenditures. Obtaining generic drugs at competitive prices could

save them up to $600 million per year, with the poten-tial for hundreds of millions of dollars in additional savings as more major drugs lose patent protection.

For private drug plans, these costs could be redi-rected to reduce drug plan costs or expand employee coverage. Just think of all the ways you could spend that money to enhance benefit plans and improve employee wellness!

It’s time for private drug plan sponsors across the country to become better consumers. By working together with other employers and industry stakehold-ers they can ensure they are getting the best possible bang for the big bucks they spend on their drug plans. For more information about the Health Plan Sponsor Coalition forming in Atlantic Canada, contact Hugh Paton at hgrpaton@gmail.com. —S.S.

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Aggressive cost control measures in provincial drug plans have driven up costs for plan sponsors.

Editor’s InboxMarch/April 2009 • Employee Benefit News Canada 5

When is a pension bailout not a bailout?

By PAUL FORESTELL

Temporary solvency funding relief offered to defined benefit plan sponsors and administrators in

several key Canadian pension jurisdic-tions since the fourth quarter of 2008 came with restrictions that could se-verely limit a company’s ability to take advantage of these provisions.

A by-product of the 2008 financial crisis has been the rapid deterioration of the funded position of Canadian pension plans. In the last six months of 2008, the Mercer Pension Health Index dropped from 79% to 59%, the largest decrease in the 10 years of its existence. As a result, most pension plans in Canada faced large solvency shortfalls and increased cash funding requirements at January 1, 2009.

Because Canadian pension plans are provincially regulated (except for certain federal employers, such as banks, transportation and telecom-munication companies), and repeated appeals for a uniform pension law have not been productive, we must still contend with different funding re-quirements, and consequently differ-ent solvency funding relief measures, by province.

Although the temporary solvency funding relief measures are different, they have some common elements:

• Use of the April 2009 Canadian Institute of Actuaries standard for calculating lump-sum payments from pension plans (which results in lower values).

• Extending the funding period of 2008 solvency deficits from five years to 10 years.

• Permitting the averaging of asset values over up to five years.

On the face of it, these three measures would provide relief to most plan sponsors by allowing them to defer funding of the 2008 investment losses over a longer period. This deferral would provide companies with time to adjust cash budgets and cash funding to the higher level. As well, it would allow time for any potential market recovery that might remove the need for some of the higher contributions.

However, in some jurisdictions

there are onerous prerequisites to ac-cessing the “relief.”

For example, the press release is-sued by Ontario’s Minister of Finance notes that access to funding relief is tied to “consent of active members or their collective bargaining agents and retired plan members.”

Except for the most extreme cases of distress, it is unlikely that a com-pany would get consent from mem-bers, so they will likely not even try to

ask for it. As a result, for Ontario registered pen-sion plans, the possibility of funding over 10 years is low.

At the federal level, the government has provided sponsors with the option to obtain letters of credit for the difference in fund-ing contributions between 10- and 5-year funding if they are unwilling or un-able to get consent.

This is the same relief that federal sponsors

were provided in 2006; however the economy and credit markets are very different today than they were two years ago. In today’s credit environ-ment, some companies may be unable to obtain a letter of credit, and those that can get one may find the cost unreasonable.

The use of letters of credit to secure pension benefits should form part of the long-term solution to pension se-curity, but it will be an ineffective tool to deal with the short-term funding pressures in 2009.

Not all jurisdictions have imposed restrictions on taking advantage of the 10-year funding option. Most nota-bly, Quebec has allowed sponsors to fund over 10 years without employee consent or a letter of credit. This is a welcome departure from the tempo-rary relief Quebec implemented in 2006 and from the proposed Ontario and federal relief measures.

Now, as the Ontario and federal measures are only proposed at this point, there is still time for more meaningful and useful relief to be implemented. Similarly, Alberta and Saskatchewan have recently complet-ed a consultation process regarding appropriate funding relief measures that will hopefully lead to appropriate and useful funding changes.

In my view, the changes in the funding rules should permit:

• 10-year funding of solvency defi-cits with no restrictions on consent, letters of credit or benefit improve-ments.

• Smoothing of assets over up to five years.

• The use of the new Canadian Institute of Actuaries standard for the

calculation of lump sums. These should be permanent

changes, applied all across Canada. A uniform funding regime in Canada may only be aspirational, but it would be very welcome to pension industry stakeholders.

The need to provide temporary re-lief twice in less than three years high-lights the need for permanent changes and has been recognized at least by the federal government, which is cur-rently reviewing long-term fixes for the funding of federal pension plans.

A pension bailout is not a pension bailout when few, if any, plan sponsors can avail themselves of it. This is es-pecially the case for most Ontario and federal plan sponsors. The situation is better for Quebec sponsors and at least optimistic for Western sponsors.

Permanent funding changes, ap-plied consistently across Canada, would allow employers to manage their pension plan funding better in today’s environment of restricted access to credit and equity market volatility. Measures that enhance the sustainabil-ity of pension benefits or strengthen the financial position of the plan spon-sor can only serve plan beneficiaries better in the longer term. —E.B.N.C.

Paul Forestell, F.S.A, F.C.I.A., is a worldwide partner and leader of the Canadian Retire-ment Professional Group at Mercer. He can be reached at paul.forestell@mercer.com.

Paul forestell

Investment Insider6 March/April 2009 • Employee Benefit News Canada

Financial crisis sharpens critique of securities lendingBy LARRy SWARTz AND JOE CONNOLLy

Securities lending had been a longstanding and profitable sideline for many large pension

and mutual funds. However, this prac-tice has come into question recently, in part due to the collapse of Lehman Brothers and a succession of high-pro-file bailouts (e.g., Fannie Mae, Freddie Mac and AIG).

In Canada, the Ontario Teachers’ Pension Plan discontinued its secu-rities-lending practice almost two years ago, noting that in situations where the OTPP both lent out shares and held a voting interest in the same shares, it could no longer participate in key shareholder votes.

Similarly, when last September’s financial markets melted down, the Canada Pension Plan Investment Board revealed that it shut down in-definitely its entire securities-lending program. When the program closed it had outstanding loans valued at $1.6 billion.

How it works Securities lending, or stock lending,

is the short-term loan of securities. Lenders are often institutions, like pension funds, that hold the securities for the long term.

Borrowers are often speculative players, like hedge funds, that sell the borrowed securities short. Typically, the borrower makes money if the bor-rowed security’s value declines.

Critics have argued that securities lending can work against the inter-ests of the lender by driving down the value of the lender’s own holdings. They have charged that securities lending has helped hedge funds and short sellers drive down the value of the markets.

Yet many in the investment community have dismissed these criticisms. For them, the returns from securities lending have proven them-selves over the years.

The lender of the securities is sup-posed to always earn an incremental return. In theory, the lender makes a profit as long as the borrower repays the loan. The securities borrower is obligated to return the securities — either on demand or at the end of

an agreed term. To minimize the risk of default,

lenders insist that borrowers provide collateral. The lender earns fees and interest from the collateral. The fee is variable and increases as the illiquidity of the shares increases.

The lender should not lose if collat-eral is sufficient and does not decline in value. Therefore, collateral is often cash or government securities of equal or greater value than the securities lent.

The Office of the Superintendent of Financial Institutions Guideline, Secu-rities Lending: Pension Plans, revised in September 2006, states “the amount of collateral taken for securities lend-ing should reflect best practices in local markets. In Canada, the current market practice is to obtain collateral of at least 102% of the market value of the securities lent.” In practice, many investment firms lending securities request collateral of 105%.

understanding the risksWhen a pension fund lends securi-

ties the assets do not remain in the fund; two primary types of risk result — collateral risk and counterparty risk.

Collateral risk depends on what the pension fund receives in exchange for lending the shares. This type of risk also depends on whether the borrower is able to provide additional security when required to do so. It can be man-aged through investment research,

portfolio management and controls that reflect the pension plan’s risk and reward objec-tives.

Counterparty risk represents the risk of default — an extreme situation when a borrower col-lapses and is unable or unwill-ing to return assets. Given the recent financial crisis, it’s not hard to imagine this scenario.

There are a number of approaches to managing risks involved in securities lending. Consistent and vigilant application of these methods can mitigate the impact of risk and stabilize the lender-bor-rower relationship.

Plan administrators should request reports from the invest-ment manager and conduct due

diligence to ensure the appropriate collateral margin. The collateral mar-gin should provide adequate protec-tion against volatility and liquidity.

To be prudent, both loaned and collateral securities should be marked to market daily. Any shortfalls in the amount of collateral should be recti-

fied immediately. Plan administrators should also ensure that collateral and counterparty risks are consistent with the pension plan’s Statement of Invest-ment Policies & Procedures.

An agent-lender can be hired by the lender to facilitate the monitoring of overall credit risk and, depending on the retainer, compliance with invest-ment guidelines. The role of the agent lender is to ensure that the appropri-ate amount of collateral is held. In addition, the agent-lender is retained to maintain credit quality and liquidity within the investment guidelines.

Agent-lenders may also offer opera-tional and default indemnification. Plan administrators should know what their indemnification covers.

Counterparty risk may be mini-

mized by ensuring the agent-lender assesses and decides on appropriate borrowers. There should be a strict set of requirements in place that will limit exposure to each borrower and moni-tor the borrower’s financials, credit ratings and credit risk.

Plan administrators should review their program with their consultant to learn more about the procedures for managing each of the risks. Each plan administrator should be aware of its investment guidelines and the ap-proach the investment manager takes within the guidelines.

Finally, plan administrators should proactively request the investment manager monitor their programs through reporting, periodic due-dili-gence reviews and access to knowl-edgeable staff. They should ensure that they understand their legal agree-ment and should ask questions of their consultants if they have concerns.

Ultimately, it is the plan admin-istrator/sponsor that must decide if the tradeoff from securities lending is prudent between return and the ac-companying risk.

continuing vigilance requiredA securities lending program can

be beneficial, but there are inherent challenges. However, risks can be minimized.

When markets stabilize again the apparent risks will likely fade. But, in these uncertain times, pension plan administrators need to be particularly vigilant and seek proper advice in de-ciding on the appropriate securities-lending program, if any. —E.B.N.C.

Larry Swartz, LLB, CFA, is a principal with Morneau Sobeco in Toronto. Joe Con-nolly, M.A., is an investment consultant in Morneau Sobeco’s investment consulting practice in Toronto. They can be reached at LSwartz@morneausobeco.com and JConnolly@morneausobeco.com.

Many in the invest-ment community have dismissed criticisms of securities lending because returns have proven themselves over the years, says Joe Connolly.

Pension plan administrators need to be particularly vigilant and seek proper advice in deciding on the appropri-ate securities lending program, says Larry Swartz.

Critics say securities lending has helped hedge funds and short sellers drive down the value of the market.

March/April 2009 • Employee Benefit News Canada 7

Pension plans travel the long road to recovery

By JEFFREy mULLER

Headlines in the financial press show the Canadian economy has entered a recession deep-

ened by the collapse of commodities, but this downturn should not have been unexpected.

Before pension plans can embark on the road to financial recovery, it is important to reflect on how they got to where they are today.

In the past decade there have been three significant market events that have influenced Canadian monetary and fiscal policy, and ultimately the economy: the collapse of long-term capital management (1998); the tech bubble and wreck (1999-2002); and most recently, the real estate bubble and associated toxic assets (2004-2007).

One lesson to be learned from these events is that, going forward, financial markets will likely be increas-ingly volatile. Therefore, plan spon-sors will need to ask themselves “Can we continue to manage a pension plan with the expectation of lower contribution requirements in a highly volatile market environment?”

In addition, to provide a holistic picture of a plan’s financial health, a balance sheet approach that con-siders the surplus position is also recommended. However, the Canada Revenue Agency maximum rules for contributions and surplus retention restrict the accumulation of funds in

pension plans for “a rainy day” and, in the end, have proven to be punitive.

establish a liability benchmarkAs a result, we believe the first step

on the route back to plan financial health is for defined benefit plan sponsors to confirm whether the best liability benchmark for the plan is going-concern liabilities, solvency li-abilities or accounting liabilities.

It is difficult for a plan to satisfy more than one benchmark, but sub-ject to the general financial position of the sponsor, the most appropriate measure to focus on is generally go-ing-concern. This is because, barring employer insolvency, the ultimate goal of a pension plan is to pay out some level of pension benefit over the long-term, and going-concern liabili-ties are most closely aligned with this objective.

In addition, various provincial regulators have temporarily loosened some of the solvency funding re-quirements to support plan sponsors through these challenging times, mea-suring solvency over a longer term.

An understanding of the funda-mental risks to the plan sponsor is also important. For example, a public-sec-tor plan will face different risks than a plan sponsored by a private sector firm. A private-sector company in a cyclical industry, such as an au-tomobile parts manufacturer, will have greater strains on their funding capabilities at different points in the

economic cycle than a slower, steady-growing company, such as a utility.

Asset-liability modelingAssuming going-concern is the

proper measure to focus on, is getting back to 100% funding realistic? What should sponsors do if they get there?

Asset volatility must be understood, and sensitivity- or worst-case-scenario testing conducted. Asset volatility has historically arisen from equity mis-match risk with the plan’s liabilities, es-pecially when the market value of assets is used. This remains a viable approach; however, a sponsor needs to be able to afford, and stomach, the volatility.

A key risk management tool to help plans navigate out of their current situation is asset-liability modeling. A current ALM study is recommended given the significant changes recently in assets and interest rates.

The study will give a sponsor a greater appreciation of changes in the levels and variability in pension costs (defined as the amount of money a sponsor is putting into a plan) arising under different possible outcomes, in-cluding rates and asset shocks. It also identifies potential solutions.

An ALM study can also illustrate if and when a plan can reasonably ex-pect to return to full funding using dif-ferent investment approaches, as well as what cost model they are ultimately adopting.

investment strategiesAs part of an ALM study, a plan will

end up considering one of two invest-ment approaches:

• Balanced approach. A plan may simply choose to “ride it out” with a traditional balanced approach to the asset allocation, in the anticipation that with time the equity markets will come back. Along with special and regular contributions, the plan indeed may recover this way. Although it could take a decade or more, this may be the only chance for smaller, single-employer plans.

• LDI approach. Another possibility is a liability-driven investment ap-proach. Instead of focusing exclusively on return, LDI strategies seek to en-sure adequate diversification against a set of specifically identified risks faced by the plan. The strategies will require leverage, derivatives and greater edu-cation requirements for the pension committee. However, by removing the equity mismatch risk associated with the traditional balanced approach,

this allows the sponsor to seek excess market return from other sources.

With a balanced approach, the cur-rent portfolio is an efficient combi-nation of equities and fixed income securities, whereas under an LDI approach the minimum risk portfolio on the surplus efficient frontier is a long-bond strategy representative of the liabilities.

cost modelsUltimately, these two investment

approaches will lead to one of two pension cost models:

• Expected low cost with high vari-ability.

• Expected high cost with stable variability.

A balanced approach using mostly traditional asset classes, along with the expectation of a lower long-term cost with higher variability, is the model most frequently adopted today. How-ever due to recent economic events and the 2011 accounting changes, LDI is rapidly gaining traction.

Furthermore, implementing LDI now is going to be expensive. There-fore, all things being equal, plans must choose whether to ride it out with a balanced approach to a better part of the funding cycle, or pay up now for a high-cost, but stable, LDI structure.

All of this addresses the assets of a plan assuming the liabilities remain as is. If a plan sponsor truly cannot afford a DB plan due to the high cost and variability of asset approaches required today, but does not want a DC plan, another possible option for consideration is a target-benefit plan, as put forth by the Ontario Expert Commission on Pensions, which addresses both the asset and benefit (liability) sides of a plan.

stormy outlookThe economic outlook for pen-

sion plans at the moment is still very stormy, and the reality is that it will be difficult for every plan to make it out of this deep down-cycle.

However, with an examination of key plan risks and liability measures, a sponsor will gain an appreciation of the alternative investment approaches they can implement, along with their cost structures, either now or once their pension fund returns to financial health. —E.B.N.C.

Jeffrey Muller is an investment consultant with Buck Consultants in Ottawa. He can be reached at Jeffrey.Muller@buckconsultants.com.

Retirement8 March/April 2009 • Employee Benefit News Canada

More proactive risk management urged for pension plansBy ANDREA DAvIS

Even in the face of weak economic conditions and poor market returns, defined benefit pension

plans worldwide have taken only small and conservative steps toward risk management, according to a survey from Hewitt Associates.

Hewitt surveyed 171 plan spon-sors in 12 countries to determine their approaches and attitudes to managing pension risk. Globally, 66% of survey respondents say they have either closed or are considering closing the plan to new entrants as a step to managing risk.

The issue of pen-sion risk management is particularly pressing in Canada, which survey results indicate has the highest proportion of DB plans open to new entrants. In Canada, only 33% of survey respon-dents have either closed or are considering clos-ing their DB plan to new entrants.

In the U.S., 76% of respondents have either closed or are considering closing the plan to new entrants, while 24% have already stopped accruals.

“In the U.S., most activity around risk management is from a plan design perspective,” says Joe McDonald, head of Hewitt’s global risk services practice in North America. “Plan design is the least effective way to manage risks.”

Canada has a higher proportion of DB plans still open to new entrants for two main reasons, says Rob Vander-sanden, a senior pension consultant in Hewitt’s Calgary office. “We don’t have the same accounting rules [yet], and that’s taken some of the pressure away because we don’t have some of the immediate balance-sheet recognition issues they have in other parts of the world.” he says. “Accounting rules in Canada will change in 2011.”

Plan sponsors are also reluctant to close plans to new entrants because of the Wronko decision in Ontario, which restricts the ability of employers to fundamentally alter employment contracts (including pension, benefit and compensation arrangements).

“I think if a plan sponsor is looking at closing a pension plan and replac-

ing it with something else, then there is a risk if they can’t demonstrate it’s pretty similar in value. They could land in court because employees are objecting to the changes,” Vander-sanden continues. “That hasn’t been tested in the pension environment yet, but I don’t think it would take much for somebody to make the challenge.”

influencing factorsIn terms of the factors that influ-

ence a company’s attitude toward managing pension risk, accounting issues domi-nate globally, principally in terms of the impact on the profit-and-loss statement. Because of differences in accounting standards between Can-ada and the rest of the world, as well as Canada’s solvency funding regime, Canadian plans are more concerned with cash funding requirements.

Very few organiza-tions manage pension

risk within the context of an overall enterprise risk-management system, notes the survey, with only 12% of Canadian respondents, 18% of global respondents and 24% of U.S. partici-pants saying their pension risks are part of an overall risk budget for the organization.

“Pension plan risks are still largely managed in isolation,” says McDon-ald. “There’s room for improvement.”

Asset-liability mismatchReducing asset-liability mismatch

is the No. 1 action plan sponsors worldwide have taken or are consider-ing taking, to lower their pension risk. Globally, 77% of organizations say they’ve taken steps to reduce asset-lia-bility mismatch or are considering do-ing so. In the U.S., that number is 78%, while in Canada, 69% of organizations have either taken or are contemplating similar action.

Plan sponsors need to be more proactive in their risk-management approach because, in the current economic environment, “just reducing asset-liability mismatch is not going to be enough for most organizations,” says Vandersanden.

Increasing the pension fund’s allo-

cation to foreign equities was the most common investment strategy change made by Cana-dian plan sponsors to re-duce pension risk, cited by 45% of respondents. An increased use of alternative asset classes, such as real estate, hedge funds, commodities and private equity was noted by 24% of Canadian respondents.

And while there has been some movement in Canada toward reduc-ing equity investments and increasing bond investments in order to reduce risk by more closely matching liabili-ties, this movement is far less signifi-cant in in this country (21%) than in Europe, where 60% have reduced their equity allocation.

Plan sponsors need to clearly articu-late and document what their financial objectives are for the program, says Vandersanden, starting with a state-ment of which risks are the most impor-tant to manage for that particular plan.

“Some plan sponsors are more fo-

cused on managing cash flow requirements, while others are trying to main-tain stable contribution rates, or more focused on the pension expense they have to disclose in their financial statements under the accounting rules,” he says, adding that in 2008, interest rates used for solvency valu-ations were going down while interest rates for

accounting valuations were going up. “What you do in that environment is very different based on whether you’re trying to manage solvency or account-ing liabilities.”

Overall, “it’s still early days in terms of plan sponsor awareness around what they can and should be do-ing around taking a more proactive approach to managing their pension risk,” says Vandersanden. “I think that’s a good thing for Canadian plan sponsors because it gives them the ability to look at what’s been tried in other jurisdictions and what makes sense in a Canadian context.” —A.D.

Risk disclosure

Globally, only one in four companies provide communication to ana-lysts, shareholders or credit rating agencies on their pension risk over and above the statutory accounting standards.

According to Hewitt’s Global Pension Risk Survey 2008, this disclosure is an important trend that will likely accelerate in the current financial climate.

“This is an area where companies should disclose,” says Hewitt’s Joe McDonald. “Companies do benefit from telling people about how they manage pension risk.”

0 20 40 60 80 100

Canada

US

UK

Europe

% of Respondents

No additional info Considering providing Provide briefings Disclose in accounts

70

67 7 26

78 2

3

16 4

76

7 9 14

21

Rob vandersanden

Joe Mcdonald

March/April 2009 • Employee Benefit News Canada 9

TFSA or no TFSA, that is the question

By mICHELLE LODER AND IAN mAIR

Many employers are being encouraged by their provid-ers to add a tax-free savings

account as an option to their existing group savings plan. But should the decision to add a TFSA be automatic?

The tax advantages of a TFSA to individuals are clear, and the flexibility of a TFSA will appeal to many. But the decision to offer a group TFSA should align with business goals and be based on the TFSA fulfilling an identified purpose within the organization’s overall total rewards strategy. The objective for the group TFSA may also vary across employee segments.

Some preliminary questions to be addressed are:

• What purpose will the TFSA serve, for both the organization and plan members?

• Should the TFSA be used to en-courage retirement savings?

• Would your employees use a TFSA for this purpose or treat it like a bank account with frequent withdraw-als, jeopardizing achievement of the retirement savings objective?

• In the alternative, should the TFSA be used to fund other savings objectives, such as a reserve for unin-sured health care costs, “rainy days” or large purchases?

• How will these choices align with your current rewards strategy and benefits programs?

In addition, because a group TFSA will likely be subject to Capital Ac-cumulation Plan Guidelines, employ-ers should consider the impact that offering a TFSA may have on the organization’s responsibilities as a plan sponsor.

Adhering to the CAP Guidelines will require an administrative and gover-nance framework for the selection and monitoring of service providers and investment options, and for providing proper communication and decision-making support tools to plan members.

Where should i save first?For employees who already have to

choose where to direct funds among complex programs, offering a TFSA will entail additional employee com-munications and tools to enable them to properly evaluate and choose where to direct their savings.

Towers Perrin has modeled the efficiency of saving in a TFSA or a registered vehicle to determine if there are situations where the TFSA should be the preferred option for funding retirement income.

As illustrated in the chart accompa-nying this article, our general conclu-sion is that if we define “better” as the savings approach which maximizes an employee’s disposable income over the combined years of employment and retirement, then saving first through a registered vehicle will prove slightly more beneficial for most employees.

For the 15% of Canadians with incomes below $20,000 per year, sav-ing for retirement in a TFSA first could be better, since TFSA withdrawals at retirement do not affect entitlement to the Guaranteed Income Supplement.

However, for this group, the retire-ment income provided by the Canada/Quebec Pension Plan, Old Age Security and the Guaranteed Income Supple-ment will replace more than 80% of preretirement income, so the need for retirement savings in either vehicle is questionable.

For the 72% of working Canadi-ans who earn between $20,000 and $80,000, our analysis shows that it is marginally more advantageous to save first in a registered vehicle.

Employees in this income range might find it simply more convenient to limit their retirement savings to a registered vehicle, because the low contribution limit on the TFSA means that once a person earns more than about $50,000, attaining a typical retirement income replacement ratio will not be possible using only a TFSA to supplement government pensions.

Instead, the use of both a TFSA and a registered vehicle will be required (a potentially more complex option that will not produce any increase in disposable income.)

There is a relatively small group, representing about 8% of the work-ing population, that earns between $80,000 and $130,000. To reach a typical retirement income target, this group will find some advantage to maximizing the TFSA contributions first, due to the claw-back provisions of the OAS pension.

TFSA withdrawals do not reduce the OAS payment, unlike income from registered vehicles. The advantage, however, is slight, since at this income level the TFSA can only fund a small portion of the total retirement income need.

For Canadians who earn more than $130,000, achieving typical retirement income targets will require saving in both a registered vehicle and a TFSA, due to the contribution limits under the Income Tax Act. For individuals who don’t need to maximize contri-butions to both arrangements, it is marginally better to maximize con-

tributions to the registered vehicle first. The residual amounts needed to top up to the desired total retire-ment income should be contributed to the TFSA.

Beyond a certain income level, most people will need to contribute the maximum amounts to both a regis-tered vehicle and a TFSA, and likely make additional contributions to non-reg-istered savings plans in order to attain their target retirement income. At these income levels, there is no decision to make between contributing to a registered

vehicle or TFSA first — both will be fully utilized.

the right answerThe amount of choice and flex-

ibility in retirement savings programs offered to individuals has increased significantly in recent years due to an increase in the number of CAPs spon-sored by employers and the flexibility of those arrangements.

As such, your employees may al-ready be struggling to understand and value the retirement savings opportu-nities available to them, in spite of ef-forts to communicate these programs and provide tools for monitoring progress toward retirement goals.

While adding a TFSA may, in some cases, prove to be the right answer, this conclusion can only be reached by asking the right questions. Proper use by employees of the available sav-ings options will also be maximized if they receive educational materials and other forms of communication that help them to decide how to most effectively save in each of the available programs. —E.B.N.C.

This article was authored by Towers Perrin Principal Ian Mair and Towers Perrin’s Ca-nadian DC Business Leader Michelle Loder, both based in the Toronto office. They can be reached at Ian.mair@towersperrin.com and Michelle.loder@towersperrin.com.

RRSP vs. TFSACan vehicle meet full

retirement savings need?

Portion of Canadian workforce

Employment income range

Advantage to sav-ing in vehicle first RRSP TFSA

15% Less than $20,000 TFSA (minimal) Yes Yes

40% $20,000 - $50,000 RRSP Yes Yes

32% $50,000 - $80,000 RRSP Yes No

8% $80,000 - $130,000 TFSA (minimal) Yes No

3% $130,000 - $160,000 RRSP(minimal) No No

2% More than $160,000 Neutral No No

SouRce: Towers Perrin analysis

Understanding TFSAs

The TFSA became available January 1, 2009. Individu-als who are 18 years of age or older can contribute up to $5,000 per year to a TFSA, regardless of their earnings or employment status.

Contributions to a TFSA are made from after-tax dollars, but TFSA investment earnings and withdrawals are not sub-ject to tax. TFSA contribution room is restored whenever a distribution is made from the account, equal to the full amount of the withdrawal.

Withdrawals from a TFSA do not trigger the claw-back of government benefits such as Old Age Security or the Guar-anteed Income Supplement.

10 March/April 2009 • employeeBenefitnewsCanada Retirement

Valuation(FrOm pAgE 1)

fully fund the benefits promised based on the proposed valuation standard.

“We think the 10 years is impor-tant because you do not have to start using things like smoothed asset value. We recommend that all assets be valued on a mark-to-market basis because it’s more transparent and closer to what’s really happening,” comments Crawford.

Another key feature of the pro-posed new regime is that benefit improvements will not be permitted if the plan is in deficit, unless the deficit is paid in full or the benefit is completely prepaid. The benefit improvement may also be paid for in annual installments, so long as the improvement is considered as “a hope,” rather than “a promise” until it is fully funded.

“I was initially against not let-ting plans improve their benefits if they don’t have the money, but I can understand the panel’s perspec-tive,” says Morneau Sobeco Partner Michael O’Connell.

Industry feedbackAlthough transition rules will pro-

vide that plans promising indexing based on inflation at the end of 2008 only have to amortize half of the defi-cit attributable to the indexing until the end of 2014, O’Connell worries about the impact of the new mini-mum funding rules on plan sponsors.

“The trouble is we’ve had a regime in place for a long time, and I feel some sympathy with the companies that are now saying, ‘We’ve been responsibly funding on this basis and now you are asking us to change how we fund,’” he says. “Larger companies

in particular budget over many years, and now those budgets will change.”

“Where it could really come to a head is if I go to buy an annuity for a client when the pension plan is wound up, and the minimum funding value I held at the last valuation is not sufficient,” he continues.

The president of the Canadian Institute of Actuaries, Michael Hale, is also concerned that transfer values for employees based on the new rules could be lower than under the CIA standards.

But the biggest issue for Hale is that by establishing a new funding approach, Nova Scotia will be shattering adher-ence to relatively harmonized national actuarial standards.

“It’s not a bad formula, but it’s another unique valuation methodology applicable in one jurisdiction. I know in the re-port the panel makes reference to the creativity arising out of individual provincial pension standards, but they add com-plexity and unnecessary cost,” he says.

Finding a way forwardCrawford shares the prevail-

ing opinion that harmoniza-tion is “a great thing” but he

says, “It is essentially unattainable in our current regulatory environment despite the wish of everyone to have it that way.”

Further, he believes the impact of the new funding standard on major plan sponsors could be minimized

if amending legislation incorporates the panel’s recommendation for a passport approach that would allow plan sponsors registered in other jurisdictions to regulate Nova Scotia employees in accordance with their own legislation.

“This could help to give Nova Sco-tia a competitive edge, as employers with large plans elsewhere would not be expected to value their benefits in accordance with our new funding method,” he explains.

“It is better if [valuation methods] can be the same, but there is a lot of individualization in plans themselves, never mind the regulation or super-

vision around them,” agrees Hale. “However, I’m not sure the differ-ences alone are enough to bar doing this. I think what should be taken into account is the impact of actual ben-efit reductions for employees.”

O’Connell was initially resistant to

the proposed new minimum funding standards, but he readily concedes the status quo is not okay. “Solvency funding has been the bane of most plan sponsors’ lives for many years now. The new proposals are growing on me.”

He also thinks that the proposed new minimum funding approach could evolve over time. “These rec-ommendations are unlikely to come to the attention of the Nova Scotia legislature until the fall of this year, so what ever is going to happen is a fair ways off, and there is plenty of discus-sion still to be had.” —S.S.

Benefitimprovementswillnotbepermittediftheplanisindeficit,unlessthedeficitispaidinfullorthebenefitiscompletelypre-paid.

The president of the Canadian Institute of Actuaries, Michael Hale, is also con-cerned that transfer values for employees based on the new rules could be lower than under the CIA standards.

Morneau Sobeco Partner Michael O’Connell was initially resistant to the proposed minimum funding standards, but he readily concedes the status quo is not okay.

Health12 March/April 2009 • Employee Benefit News Canada

Wellness on a budgetEmployers adopt high-tech, high-touch solutions

By Sue Pridham

Even in these difficult economic times progressive organizations understand the value of wellness

programs that help maintain employ-ee health, energy and focus.

Lack of time, sedentary jobs, long commutes, stress, family responsibili-ties and inaccessible workout facili-ties are just a few of the reasons why many employees are struggling to stay active, eat well and keep their weight in check.

To help employees meet these challenges, there is growing interest in cost-effective, high-tech online wellness solutions, which are particu-larly effective for organizations with multiple locations. These programs can also be designed with high-touch features, such as “ask the expert” capabilities, healthy competition and interactive quizzes

Employees receive wellness infor-mation on a specific topic through

daily or weekly e-mails. Campaigns are time-defined, promote goal-set-ting and behavior change, and provide wellness informa-tion, follow-up and evaluation. Some of the campaigns incorporate healthy competition with optional draw prizes to reward partici-pation.

Once the wellness campaign or challenge has ended, companies can keep the wellness message alive by profil-ing willing employees who have made positive lifestyle changes on the corporate wellness intranet site.

RBC’s “Feeling Good” campaignLast fall, RBC launched Tri Fit’s

“Feeling Good” e-mail campaign for its 57,000 employees across Canada, to promote work/life effectiveness

and resilience, and support a broader mental-health awareness initiative.

The 10-day campaign consisted of daily wellness tips relating to mental and emotional well-being, stress man-agement and self-care. Each morning registered employees received a short health tip that was simple, practical and easy to incorporate into their daily life.

Employees said: • “I found these daily

tips helpful in thinking more positively and

starting the day on a good note. I hope to see

these again in the near future.”• “I thought it was a terrific cam-paign and looked forward to open-ing the message each morning. The messages were perfect, and I wouldn’t change anything.”• “It was short and to the point and

did not take too much time from work to read.”• “The tips were very helpful and applicable to everyone. I have forwarded them to family and friends.”As a result of the campaign RBC is

now providing a weekly wellness tip.

“Eating Well” at Staples CanadaStaples Canada is also enthusiastic

about delivering the wellness message online. Like RBC, they are challenged to reach out to a decentralized work-force. Fifteen thousand associates across Canada were invited to partici-pate in the “Eating Well” campaign last fall.

Associates tested their nutrition knowledge with this 4-week healthy eating campaign, covering topics such as snacking, dining out, eating breakfast and portion size. Registered associates received a weekly e-mail with a nutrition tip, an activity, reci-pes, trivia and a quiz. Associates who

Sue Pridham

March/April 2009 • Employee Benefit News Canada 13

answered the weekly quiz were eligible to win prizes.

Staples associates also participated in the “Be Active” challenge last spring. Participants collected points for incor-porating regular physical activity into their daily lives. Those who logged a minimum number of points online were entered into a prize-drawing.

Following these organized challenges, Staples Canada associates were inspired to develop their own wellness events. One Staples store created a challenge that involved walking or jogging laps around their building on breaks. Those who logged the most laps were eligible for prizes. Another store created a weight-loss challenge, and many stores have incorporated healthy snacks into Teacher Appreciation nights and meetings.

Microsoft learns to runMicrosoft conducted an e-mail

“Learn to Run,” sponsored by the Mi-croFit Wellness Centre last April, with the goal for participating employees to be capable of running a 5-km race.

The program was designed to provide

a safe and motivating online support group to gradually ease participants into running, build stamina and help ease the frustration that people often experi-ence when they decide to try running on their own.

Weekly e-mails provided the motiva-tion and information to help employees

increase commitment and mileage. Participants were able to “ask the expert” questions about their running challenges at any point in the eight-week training program.

Employee feedback was extremely positive:

• “Before I started running, I was not able to run for more than 10 minutes without giving up. Having participated in the Learn to Run program, I was able to confidently run a half-hour without being out of breath by the sixth week.”

• “The scheduled training and nutri-tion information enabled me to progres-sively increase my stamina, as well as eat properly to shock-up my energy.”

• “I had so much fun competing with my peers — we supported each other every week.”

• “I was amazed how the weekly fit-tips helped me stay motivated.”

The 12 Days of FitmasIn December, employees at the

Canada Life Toronto head office partici-pated in “The 12 Days of Fitmas” e-mail campaign promoting the message “Tis

the season to take time to take care of yourself.”

Participants received 12 days of well-ness strategies to help get them through the season with energy and patience to spare. Strategies included exercise, holi-day eating and entertaining tips, healthy recipes, getting rest and more.

Participants had a lot of great things to say about the campaign:

• “It is always good to remind people to stay on track, and the idea of support throughout the ‘eating season’ is great.”

• “I enjoyed the e-mails. It kept me motivated to keep working out during the holidays. I enjoyed the recipes and also found some of the fitness tips to be very useful.”

• “I actually used a lot of info from the e-mails and recipes — tons of good tips!! They were very motivating!”

Putting eWellness in contextWhile high-tech wellness solutions

can educate, motivate and connect em-ployees with similar wellness goals, they should not be offered in isolation. In or-der for workplace wellness programs to have the greatest impact and ultimately influence behavior change, they need

to be integrated into a broader wellness strategy.

Your organization can develop a Wellness Advisory Committee to create a framework for wellness within your organization, and a program mission and goals that reflect your organization’s culture, resources and budget.

High-tech/high-touch wellness strat-egies can pay dividends to the employee and employer alike. Think big, start small and gradually build momentum one click at a time. — E.B.N.C.

Sue Pridham is the president of TriFit (www.trifit.com), which provides a broad range of workplace wellness services, including strate-gic planning, employee needs surveys, fitness and wellness programs, nutrition and weight management, and health fairs. She can be reached at sue@trifit.com. TriFit developed the programs discussed in this article and admin-istered them for the companies profiled.

Online wellness solutions are particularly effective for organizations with multiple locations.

14 March/April 2009 • Employee Benefit News Canada Health

Study challenges savings from therapeutic substitution

By andrea daviS

Plan sponsors considering implementation of a therapeutic substitution policy as a way to

control drug costs will want to carefully examine the findings of a recent study in B.C., which says the practice does not save money and can actually have a detrimental effect on patient health.

A study published in the medical journal Alimentary Pharmacology & Therapeutics concludes that a B.C.-government PharmaCare policy, in-troduced in 2003, which was intended to reduce costs by $42 million with minimal impact on patient health,

actually cost the system and patients an extra $43.5 million and significantly diminished patients’ quality of life.

Therapeutic substitution is differ-ent from generic substitution, where the drugs are bio-equivalent. “It is not about generic substitution, but is about the government replacing one chemical for another non-bio-equiva-lent one, simply because it’s cheaper,” says Gail Attara, study co-author and executive director of the Canadian Society of Intestinal Research.

B.C. introduced the therapeutic substitution policy in the proton pump inhibitor class of drugs. PPIs are an oral medication used to reduce

gastric acid secretion in patients with ulcers, gastroesophageal reflux disease and other acid-related conditions.

The therapeutic substitution policy required patients with PPIs covered by the province’s PharmaCare program to switch from one of the four PPI brand medications they were currently using to another brand name that was the cheapest. Patients who did not make the switch were forced to forego Phar-maCare coverage.

During the three-year study period, as many as 87,000 patients in B.C. with acid-related diseases had to stop taking the medication that was working for them and switch to the cheapest available PPI medication.

The study found that, as a direct result of the therapeutic substitution policy, $24.65 million was spent on ad-ditional physician services, $9.75 mil-lion was spent on additional hospital services, and $9.11 million was spent on increased PPI utilization, for a total of more than $43.5 million.

Patient turmoil The biggest problem with the policy

was “the turmoil it created for patients,” says James Gray, a gastroenterologist in Vancouver and a clinical associate professor at the University of British Columbia. Because many patients were required to switch medications in order to retain their coverage, the “confu-sion for patients was quite dramatic. And that translated to more health care visits, more trials for different therapies and more time off work. Everything was disrupted, and that resulted in huge costs to the system,” he adds.

While the study didn’t document the effects of the policy on the work-place in terms of absenteeism or lost productivity, Gray says a number of studies have shown gastroesophageal reflux disease can have a negative impact on the quality of life of people who suffer from it. “If you don’t feel well from a gastrointestinal point of view, you might miss work, but if you do attend work, you might not be as productive or effective as you would be if you weren’t uncomfortable,” he says.

The policy has had implications for B.C.’s private payers as well, says Attara. “Unless you submit a special

authority form and have it approved by your physician, the [PharmaCare] plan isn’t going to pay anything,” she says. “Your out of pocket doesn’t even contribute to the deductible.”

And that deductible is an important component for those living in B.C., because once you fill your deductible, everything is 100% covered by Pharma-Care, even if you have a pri-

vate plan. “But if this product they’re taking monthly isn’t counting toward their deductible, then the private plan ends up paying more, because the expenses don’t get bumped into the category where it’s covered by Pharma-Care within that year,” says Attara.

Other provinces While some private plans in B.C.

mimic the provincial formulary, thera-peutic substitution is unlikely to gain traction in other parts of the country. So far, B.C. is the only province to have tested it.

“I don’t really think it’s the answer,” says Shawn O’Brien, senior consultant with Aon in Toronto. “It’s been proven here that there are other costs to the system for implementing this.”

In addition, plan sponsors are reluctant to be seen as dictating to members which drugs they should be taking. “When we talk to employers, it’s more about cost containment in a different way,” says Kimberley LeCom-te, VP with Aon in Vancouver. “They’re asking, ‘What can we do before things start hitting our plan to make employ-ees more vested in being healthy?’”

O’Brien agrees, noting that “hack-ing and slashing and cost-shifting is not the way to sustain your drug pro-gram. Employers are looking for more innovative ways to do that, and it’s more on the front-end health piece.”

The Canadian Society of Intesti-nal Research has asked the minister of health in B.C. to stop therapeutic substitution in this class. Even though the mass switching mostly occurred in 2003 and 2004, when the policy was first implemented, “the reality is that if someone comes off a private plan, they have to switch. If someone turns 65, they have to switch. If someone moves here from a different province, they have to switch,” says Attara. “I think it’s really important for it to be off the books.” —A.D.

Gastroesophageal reflux disease at a glance

According to a recent report from the Canadian Society of Intestinal Research, Acid Reflux & GERD: The Unsettling Reality in Canada, on av-erage, acid-reflux disease patients wait over two years before seeking care. Other statistics include:

• Two in five patients with GERD have difficulty sleeping, and 43% feel tired and/or worn-out. • Approximately one-quarter (24%) of Canadians experience heart-burn daily or more often. • The quality of life of GERD patients is similar to that of patients who have suffered from acute coronary events.• 17% of those surveyed say they visited their physician because they were unable to work because of their symptoms.

Shawn O’Brien

16 March/April 2009 • employeeBenefitnewsCanada Health

COB(FrOm pAgE 1)

though the rules were established, they’d been established so long ago that they didn’t really touch on the subtleties that have emerged around divorce, remarrying, adoption.”

Is it working? While the system generally works

well, Klatt says COB is probably the single most frequently asked-about issue.

“If they don’t understand [the sequence] and they submit to a car-rier that might be the second carrier, they’re going to send it back, and the member is going to be frustrated,” she notes. “The idea is to streamline things for consumers and make it as easy for them to submit to both plans as pos-sible.”

The COB system relies on plan members to provide accurate informa-tion about coverage they might have under a spouse’s plan. And while most plan members do provide correct information, misunderstandings can arise. And when they do, there are cost

implications, says Bernatchez.Take the example of a plan member

who submits a claim to their spouse’s plan first, instead of to their own. If the spouse’s insurance company has no record that the person has coverage elsewhere, it will pay the claim “when they shouldn’t, because the rules say they shouldn’t be first payer. So the first cost impact if the member doesn’t understand or ignores the rule is that the wrong insurance company and plan sponsor pick up the cost of the claim,” says Bernatchez.

The second cost implication comes at the expense of the plan member, because if they make a claim under the wrong plan first, they may not get reimbursed as much as they would have had they submitted the claim to their own plan first, then to their spouse’s plan.

Positive enrolment, which refers to the process of collecting informa-tion about dependents at the time of enrolment in the benefits plan, can help ensure the insurance carriers are getting accurate information.

“Instead of relying on the insurance company to collect that information when a claim is submitted, the plan sponsor does it right upfront when the

Key points of CLHIA’s Guideline G4

CLHIA’s new COB Guideline, effective Jan. 1, 2009, clarifies which plan is the first payer and which is the second payer in the following potentially tricky situations:

People with the same eligibility status under two plans (e.g., for people with two part-time jobs)

FIrst pAyer: the group plan under which the person’s coverage as a part-time employee has been in effect the longest.

seCOnd pAyer: the other group plan.

A retiree covered under two group plansFIrst pAyer: the group plan under which the person’s coverage

as a retiree has been in effect the longest. seCOnd pAyer: the other group plan.

Students covered under both a student plan through an educational institution and as a dependent under a parent’s plan

FIrst pAyer: the health or dental plan through the student’s educational institution.

seCOnd pAyer: the parent’s plan. If the dependent child is em-ployed on a part-time basis and eligible for coverage, the first payer is the under the child’s own coverage as a part-time employee and the second payer is the parent’s plan.

People covered as a spouse and/or a surviving spouse under more than one group plan

FIrst pAyer: the group plan under which the person’s coverage took effect most recently.

seCOnd pAyer: the other group plan.

Joint-custody arrangements FIrst pAyer: the group plan of the parent with the earlier birth

date in the calendar year. seCOnd pAyer: the group plan of the parent with the later birth

date in the calendar year. If the parents have the same birth date, the alphabetical order of the parents’ first names is used.

Single-custody arrangements FIrst pAyer: the group plan of the parent with custody of the

dependent child. seCOnd pAer: the group plan of the spouse of the parent with

custody of the dependent child.tHIrd pAyer: the group plan of the parent not having custody of

the dependent child. FOurtH pAyer: the group plan of the spouse of the parent not hav-

ing custody of the dependent child.

Surviving dependent-child claims

FIrst pAyer: the group plan of the parent with the earlier birth date in the calendar year.

seCOnd pAyer: the group plan of the parent with the later birth date in the calendar year. If the parents have the same birth date, the alphabetical order of the parents’ first names is used.

Dental accidents where coverage is available under more than one plan

FIrst pAyer: the group health plan with dental accident coverageseCOnd pAyer: Group dental plan.

March/April 2009 •employeeBenefitnewsCanada17Health

member enrolls in the plan,” says Bernatchez. “Then the sponsor feeds that to the insur-ance company.”

Positive enrolment is espe-cially necessary for plans with drug cards, which are so easy for plan members to use. “If you don’t control dependents, [the drug card] could cost you more because people won’t use their own plan first,” cautions Bernatchez. “You’re introducing something so convenient that they’ll turn away from other plans if there aren’t some con-trols there.”

Who’s on first?The new COB Guideline

establishes the employee’s group plan coverage as the first payer, the dependant coverage under his or her spouse’s group plan as the second payer, and, finally, the HSA coverage as the third payer.

“The health care spending account should really be seen as a last-resort account,” says Bernatchez. “It’s like a last-re-sort bank account.”

But the guideline was also written to give insurers flexibil-ity, says Joan Wilson, man-ager, group health and dental benefits, with Great-West Life in Winnipeg, who sat on the committee that reviewed the guideline prior to its public release.

“There’s some flexibility to allow the different insurers to honour requests based on their own administrative practices,” she says. “There may be legiti-mate reasons someone might want to use their health care spending account before they use the group plan,” and the guideline allows for that.

The other key area the guideline clarifies is around survivor benefits. “We never spoke to survivor benefits, and every once in awhile we’d get questions about it,” says Klatt.

The new guideline confirms that “generally the rules that were in force before the parent or spouse passed away would continue under the survivor benefit coverage until such point as you have an exter-nal change,” says Klatt. “The thinking we had on that was we didn’t want to disrupt the already grieving and mourning family by adding another layer. We’d never had rules around

that before.”To help further clarify the is-

sue for plan members, CLHIA is launching a consumer brochure

this spring outlining the rules.“We tried to write [the

guideline] in a way that is un-derstandable to a lay person,”

says Wilson. “It’s pretty straight-forward language, and the core intent has not changed at all. We just expanded the rules a

little bit to add some clarity around circumstances that hadn’t been addressed previ-ously.” —A.D.

Quality of Life18 March/April 2009 • Employee Benefit News Canada

Giving the gift of timeConcierge services can save employees time and improve productivity

By Sheryl Smolkin

At one time or another all of us have wished that there were more than 24 hours in the day

so that we could work out, get more sleep, take a course or spend more quality time with the family.

That’s why Katherine Giovanni, president of the International Con-cierge and Errand Association thinks concierge benefits are one of the most effective work/life benefits employers can provide. “It’s going to give you an edge up on your competition because not everyone is offering this benefit.”

Concierges can be: • Hired in-house. • Small business owners servicing one or more local organizations. • Larger national providers.Available services are limited only

by the imagination and can range from sourcing hard to get tickets for a favourite performer, to planning a party on short notice, to taking a car in for servicing.

We profile below three very differ-ent concierge services that provide value-added services for both corpo-rate clients and their employees. —S.S.

When Towers Perrin decided to pilot a concierge program in 2001, they advertised internally for someone to fill the posi-tion. Library technician Jill Weinstein says, “I thought it was something I could be really good at, so I applied and became the corporate concierge.”

For the first four years as a salaried employee, Weinstein provided concierge services both to the company and to indi-vidual TP associates for business and personal reasons. Three years ago, she established her own business Concierge Services by Jill Weinstein, and TP continued as her major client.

On the corporate side, Weinstein handles contractual ar-rangements and a myriad of other details for company holiday parties and client dinners. She also finds tickets to shows and sports events, buys client gifts and sets up itineraries for clients or prospective hires visiting Toronto.

“We found other staff members were just wasting too much time on one-offs,” says Towers Perrin Toronto’s Managing Principal Kevin Aselstine. “Of course there is a hard cost, but it eliminates the soft cost of you or your assistant searching the Internet or phoning ticket lines.”

Personal services for individual employees include find-ing and waiting for service people, planning events, creating itineraries for vacations — “anything people would do for themselves but don’t have the time to do or don’t want to do,” says Weinstein.

Whether performing corporate services for TP or personal services for employees, her rate is typically $55 an hour, and she enters her charges directly into the company billing system. A flat fee applies for straightforward ticket orders, flower purchases, etc.

In the early years, there was a company subsidy to employ-ees using the concierge service for personal reasons, but for several years individual employees have paid the full amount Weinstein invoices, via payroll deduction.

Ross Gascho is currently a partner at the law firm Fasken Martineau. He often called on Weinstein for help when he was employed at TP, and although he now has to pick up the full tab, the relationship has continued.

“The thing that stands out the most for me is that she would meet repair people at the house, and she saved me endless amounts of time that I would otherwise be waiting for someone, because you know how sometimes they give you a window of four or six or eight hours,” says Gascho. “She was extremely popular. I’m still using her for the same kind of thing.”

Another one of Weinstein’s fans is TP actuary and consultant Rachna de Koning. Over the last seven years, they frequently worked together on client events. But the real test was when de Koning hired her on three weeks notice to plan her 40th birthday party.

“We entertained 100 people, and my husband and I only spent two or three hours in total on the event. She did every-thing from finding the venue, to renting furniture, hiring a DJ, getting a liquor license and selecting a menu. Everyone, includ-ing me, had a great time, and nobody could believe I pulled it off.”

Because Weinstein’s concierge services are now offered on a pay-as-you-go basis only to employees, Aselstine says, “She may not be as broadly used on an individual basis by employ-ees anymore. But there are still a number of very busy people here who have her to do errands, shopping — things like that — because for them cost is really not the consideration.”

De Koning agrees.“I’ve heard people say, ‘Jill knows what my wife likes.’ People

at TP know Jill can get it done, and it will be done well. I think both from a corporate and a personal perspective having access to her concierge service is great for employee productivity.”

Concierge services by Jill Weinstein

March/April 2009 • Employee Benefit News Canada 19

If you work in or have visited a large office tower in Toronto, Calgary or Van-couver, chances are you are familiar with eservus.

The online concierge service, which is available to tenants of over 200 buildings in these three cities, recently celebrated its 10th anniversary. Companies located in non-participating buildings can also purchase the service for their employees.

The company specializes in giving clients access to dis-counts on tickets for sports events and the arts, plus other services, such as car rentals, fitness memberships, gift bas-kets, travel, hotels and restau-rants.

President and founder Kirk Layton says, “A lot of property managers are looking for ways they can provide value-added services to attract and retain tenants and this is one way they can do it.”

Eservus promotes its servic-es to tenants, through screens in building elevators, weekly e-mails, paper newsletters and events in the lobby.

Layton says, “We’ve got about 43,000 registered employees who get our weekly electronic newsletter. We also leverage our database by run-ning contests where we en-courage clients to sign up their co-workers for a chance for both of them to win a prize.”

How much does it cost?“Where a building purchases

the service, they are charged pennies per square foot annu-ally, depending on the size of the property. Companies like Rogers that own 100% of their building are charged in the same way,” he notes. “Private companies like AirMiles/Loyal-

tyOne pay between $.50 and $1 a month per employee (de-pending on the number of em-ployees), with a $250 monthly minimum, plus delivery costs.”

Because offerings can be ac-cessed through their Website, (www.eservus.com/) and the vast majority of requests come electronically, the company can service its clientele in three cities with only 12 employees.

Examples of some of the re-cent deals available to clients are:

• 20% off on a bi-weekly membership to Goodlife Fitness.

• 20% off on Choice Hotels worldwide.

• All tickets to Broadway hit “Dirty Dancing” for $45.

That eservus has found a niche is evidenced by the fact that the company earned a spot on the 2006 Profit 100, Profit magazine’s annual ranking of the fastest-growing companies in Canada.

But perhaps the best evi-dence of its success is feed-back from happy customers.

EDS employee Jane Holz says, “I have ordered tickets for several events and bought one product. It is so easy and quick. Eservus is becoming my method of choice as the e-mails about coming items help me plan in advance and get great tickets! Well done!”

Eservus online concierge services

Thirsty Muse has serviced its corporate clients since 2001 using a unique “time currency” business model. Customers purchase the time currency, known as “delegation units,” in bulk to distribute as an en-hanced benefit to their em-ployees or customers.

“Telus buys the program for just shy of 17,000 of their employees. Generally, em-ployees get about 20 hours of personal assistant access per year,” says President Jason Rawn. “KPMG applies it right across the board to all of their employees, including students.”

Delegation units can also be easily packaged up and used as a customer loyalty tool. For example, Royal Le-Page Relocation Services buys time currency in bulk and offers it to clients who are relocating. BMO Harris Bank and Nesbit Burns position packages of delegation units as a customer loyalty tool for clients with a specified level of assets.

Examples of research requests that can be fulfilled over the phone are finding the best deal on a new car or TV, ideas for gifts and locating accommodations for an upcoming vacation. Personal assistants will also leave the office to collect mail and water plants when clients are away, pick up and deliver laundry, groceries, etc., and as-sist at events.

“Almost anything legal and ethical, you name it, we can do it,” Rawn says.

The main call centre is in Vancouver, but the company also has employees in Calgary, Toronto and Montreal. In cities such as Victoria, Regina, Halifax, Saskatoon and Winnipeg, Thirsty Muse partners with local concierge services.

Companies are charged based on expectations for utilization of the program. “In the current economy a lot of companies have a great deal of work on their plate because they have downsized, and at the same time they need to produce results. In those circumstances, if higher usage is anticipated, we will charge more, but generally speaking the service costs $150-$200/year for each em-ployee,” he explains.

However Rawn, says the most gratifying part of the business is the feedback he gets from clients.

“It’s incredibly inspiring, and it is how we monitor our service level agreements with companies like KPMG, Telus and the Bank of Montreal. Tradespeople and many other establishments are not accessible when the workday ends, and children have been fed and put to bed. Over 99% of the feedback we get is ‘You’ve really helped out my life.’”

Thirsty Muse Personal Assistance Services

Jason Rawn

Quality of Life

Video games enhance training

By kelley m. Butler

Tell the truth — which training session would you rather go through: spending two hours

watching PowerPoint slides go by or playing a video game? The benefits and communications teams at As-surant Employee Benefits, a Kansas City-based benefits carrier, thought employees would be more engaged by the latter and have achieved success with the company’s series of online training-video games called “It’s Your Business.”

“We wanted to help employees understand our business better and wanted to use a model that was new, different, interesting,” says Sylvia Wag-ner, Assurant’s senior vice president of HR.

“We put together a team of me, IT and communications to come up with something that had a ‘cool factor,’ rather than just traditional business education. I have an 18-year-old son, so I’ve been watching that genera-tion and how they learn. They really respond to gaming,” and she thought Assurant’s workers would, too.

After conducting an RFP among tech companies that specialize in creating gaming platforms, Assurant partnered with Kansas City-based Propaganda3.

It turns out, Assurant wasn’t the only firm trying something new and different. “We build a lot of gaming Web sites, but our primary clientele is ad agencies. So, [working with Assur-ant, a benefits firm,] was a break for us,” says Marcelo Vegara, president of Propaganda3.

“But [Assurant’s team] had put a great deal of thought into what they were trying to do and break the mold regarding training. What made the collaboration between us so great was they put a lot of thought in from the beginning about exactly what they wanted. They even already had games in mind!”

According to Vegara, the typical initial investment for a gaming mod-ule is between $15,000 and $25,000, with each new game costing between $7,000 and $25,000 to produce. The pricing varies so widely, he says, based on the game’s complexity.

“Something like “Hangman” is very straightforward, where a scenario-type game — with more animation and ac-tivity — is more complex,” he explains.

Among the games in Assurant’s “It’s Your Business” module features

a Hangman-esque game that quizzes employees on key business terms and features the firm’s CEO tethered to a hot air balloon by several strings. A string is cut with each wrong answer, until he ultimately falls to the ground.

The games test workers on com-pany strategy, customer base, how the company makes money and how employees contribute to company success.

CEO v. CFO smackdownDesigning the games was the fun

part; communicating the new training was tougher, although Assurant execs still had a great time.

As “It’s Your Business” was rolled out last July, “we had an all-employee meeting to explain the system, what it meant for them and what we were asking them to do,” Wagner says. “We

launched a portal on our intranet and blog where people could ask questions and find more information.”

Then, at the games’ premiere, “we had the CEO come play the game against the CFO,” she recalls. She won’t say who won — just that everyone enjoyed themselves, and enthusi-asm continues currently. “We give a

leaderboard award to our top scorers, so people keep playing trying to get their score higher — not just doing it because they have to do it. We track results on a division level as well, so there’s some friendly competition between departments.”

For both the young and young at heart

Vegara thinks the gaming format can be a good fit for companies with a diverse workforce.

“For a younger workforce, this is what they grew up doing — playing video games. And even people over 35 are seeing through Wii and iPhone games that video games are an engag-ing way to learn and teach,” he says. For any age group, he continues, “it’s delivering information in a way that’s going to stick with people. It’s active learning, not a sit back and snooze kind of environment.”

Wagner affirms that Gen X, Y and boomers alike have benefited from the new training model.

“We have a mixture of multiple generations, and we didn’t know if gaming would engage to older work-ers,” she says. “But we decided that making it easy to use and fun would work with everybody. It’s working; some of our highest scorers aren’t nec-essarily the youngest workers.”

Measuring successIn addition to the less quantifiable

successes, like increased employee engagement, “It’s Your Business” is scoring success in hard numbers as well.

When the module was launched in July, “we had a goal of having 95% of

employees participate in two games [out of a total of eight] by the end of the year,” Wagner says. “We hit our participation targets just six weeks after the launch.”

Assurant also is measuring how well employees are retaining what they’re learning. The module features “an extensive back-end database. When employees play, they have to enter their employee ID, and it tracks the number of times each person has played and their scores each time,” explains Angela Skinner, Assurant’s manager of external communications. “Then managers can pull up all of their direct reports to see how they are performing as a group.”

Skinner explains that there is noth-ing punitive about “It’s Your Business.” “It’s not factored into their performance appraisal, but getting high participation is tied to employee bonuses, so there’s a lot of peer pressure to participate.” That said, the company is satisfied with both participation and knowledge retention, according Wagner. “It was kind of a risk that has exceeded our expectations. Our CEO is very happy.”

As if a happy CEO weren’t gift enough, Assurant received a local award from the American Society for Training and Development for “It’s Your Business,” in Best Practices in Workplace Learning and Performance Through Technology Innovation.

For employers looking to replicate Assurant’s success, Wagner recom-mends building a diverse team from HR/benefits, IT and communications to “bring different perspectives to the table.” But perhaps most important, Skinner says, “Don’t be afraid to have fun!” —K.B.

Two screenshots of “It’s Your Business,” the online training module from Assurant Employee Benefits that teaches and quizzes employees on their company knowledge using a video game format.

The gaming format can be a good fit for companies with a diverse workforce.

20 March/April 2009 • Employee Benefit News Canada

Global Watch22 March/April 2009 • Employee Benefit News Canada

U.S. health care reform to take center stage this yearExperts predict Obama, Congress will revamp health care in phases

By kelley m. Butler

President Barack Obama took office in January, and while sta-bilizing the economy clearly is

priority No. 1, benefits experts predict a health care proposal to emerge from the Oval Office this year as well.

“We do have enormous problems — overwhelming problems — with the economy, but [health care reform] will see action sometime this year,” says Ted Nussbaum, Watson Wyatt direc-tor of health care consulting for North America. “I think because this issue has been on top of Obama’s agenda, and Ted Kennedy [D-Mass.] certainly won’t let it go, there will be some first-phase plan introduced this year.”

Obama campaigned vigorously about the need for health care reform during 2007 and 2008. “When it comes to health care, we don’t have to choose between a government-run health care system and the unaffordable one we have now. If you already have health insurance, the only thing that will change under my plan is that we will lower your premiums,” he said on the stump.

“If you don’t have health insur-ance, you’ll be able to get the same kind of health insurance that mem-bers of Congress give themselves. And as someone who watched his own mother spend the final months of her life arguing with insurance companies because they claimed her cancer was a pre-existing condition, they didn’t want to pay for her treatment, I will stop insurance companies from dis-criminating against those who are sick

and need care the most,” the president said in campaign stops across the na-tion. Now, Obama is poised to make his agenda into concrete legislation, with his fellow Democrats ready to lend support, if not put forth propos-als of their own.

Obama’s planAthough President Obama hasn’t

sent a specific proposal to Congress, several significant changes he intends to make in America’s health care system were outlined during the campaign.

His plan would:• Require insurance companies to cover pre-existing conditions. • Offer a tax credit to small employ-ers to offset the cost of providing health insurance to employees. • Cover a portion of employers’ catastrophic health costs in return for lower premiums for employees. • Invest in strategies to reduce pre-ventable medical errors. • Require large employers that do not offer coverage to contribute a percentage of payroll into a pool to pay for employees’ health care. • Allow medicines imported from other developed countries. • Require hospitals to collect and re-port health care cost and quality data. • Require coverage of preventive ser-vices, including cancer screenings.Such large-scale initiatives un-

doubtedly carry a similarly large price tag. Although the president has said he’ll pay for the plan by repealing tax cuts for people earning more than $250,000 per year, experts are wary, as analysis has estimated the plan will

cost more than $1 trillion.“It will be a huge, huge expense,”

Nussbaum says. “I haven’t a clue where the money is going to come from.”

However, Shawn Jenkins, CEO of BenefitFocus, a South Carolina-based benefits software provider, says that the federal spending on the Wall Street bailout and other rescue packages could be a positive sign. “There have been a lot of bold proposals and lots of money floating around. That could be a good environment for getting something passed.”

Baucus, Kennedy, Wyden offer plans

While stating support for President Obama’s overall health care reform vi-sion, three Democratic senators have drafted plans of their own.

Sen. Max Baucus (D-Mont.) has introduced a plan similar to the president’s, which would maintain the employer-based system, but require employers of a certain size to provide coverage or pay into an insurance pool. The plan also is in line with the president’s in prohibiting insurers from denying coverage for pre-existing conditions.

Further, the plan offers tax credits to individuals who purchase private insurance, and subsidies to lower-in-come families and small businesses. However, unlike Obama, Baucus’ plan would require all Americans to pur-chase health insurance.

Sen. Ron Wyden (D-Ore.), who introduced the Healthy Americans Act two years ago, also favours an individ-ual mandate, but more boldly appears to phase out employer-based coverage.

Under his plan, employers could essentially shift what they pay for health coverage to pay employees extra wages. Workers would then buy health insurance from Health Help Agencies run by individual states.

Although the bill technically preserves employer-based coverage, Wyden would eliminate employers’ tax exemption for benefits, so employers would have little incentive to offer it. Wyden’s proposal is supported by 14 other senators across both parties.

At press time Sen. Ted Kennedy had yet to unveil health care legislation, but in November he established working

groups to address three areas of health care reform: prevention and public health, improvements in the quality of care and insurance coverage.

What employers wantA pre-election survey by Buck

Consultants finds that U.S. employers want to continue to provide health coverage to their employees, but are against a government mandate to do so.

Most employers favour a health care system similar to what already exists, but adding:

• A safety net for the uninsured.• A continuing, and potentially

expanded, role for consumer-driven health plans.

• A national promotion of health and wellness.

Among other findings, if a mandate does become law, two-thirds believe employers should have plan design discretion, such as the option to offer CDHPs. As the Chamber of Com-merce’s Public Affairs Director Katie Strong told Benefits Forum & Expo at-tendees in September, “Employers feel that they can manage health benefits and plan flexibility much better than the federal government.”

Jenkins adds: “Employers feel like they’re doing a great job, investing a lot of time, energy and money into these plans, so additional mandates are not going to be met with favour.”

Outlook for ‘09Both Jenkins and Nussbaum pre-

dict movement on health care reform this year; nevertheless Jenkins says it will be a long road. He sums it up: “Clearly, there are a lot of different views on how to best solve this prob-lem — how to pay for [reform], who would be covered, whether to have a mandate, even what mandate means. To think we could simply have it come down to one piece of legislation is un-realistic. We’ll need to chip away at it.”

Nussbaum concurs, reminding that “the devil is always in the details, and right now we have concepts on the table and not much else.” —K.B.

Kelley M. Butler is the editor-in-chief of EBNC’s sister publication, Employee Benefit News.

March/April 2009 •employeeBenefitnewsCanada25

Cover Story

drugs, the design of public and private drug plans al-lows competitive rebates averaging 40% to be pro-vided by manufacturers, but gives little incentive for pharmacies to pass these savings on to private plan sponsors.

This cost transfer to private plans and individuals has been exacerbated by provincial government tactics to reduce the public drug spend, including caps on ge-neric prices and competitive tendering based on cost for preferential listing of specific drugs.

“When the Competition Bureau says there is a lack of action on the part of plan sponsors, I sort of cringe because even my clients, which are the biggest com-panies in Canada, have not had the appetite to go after the whole idea of transparency,” says Wendy Poirier, a principal in Towers Perrin’s Calgary office.

Understanding the problem“The gap between prices for public and private

plans can vary from one drug to another and even between pharmacies. The range of submitted costs is unbelievable,” explains Mike Sullivan, the president of Cubic Health Inc. “For example, just the ingredient cost for a 90-day supply of Plavix in Ontario can range from $240 to $320. How could one pharmacy have a cost base 33% higher than their competitor at the other end of the spectrum?”

“My first big problem is separating whether year-over- year escalation in drug plan costs is even related

(FrOm pAgE 1)

(SEE gENErIcS ON pAgE 26)

deal onGenerics

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Private Plan sPonsors need transParency in drug suPPly chain

26 March/April 2009 • employeeBenefitnewsCanada Cover Story

Generics(FrOm pAgE 25)

to increases in the cost of generic drugs,” says Jeannie McQuaid, HR supervisor at Belshield Enterprises in Belleville, Ontario. “Who would ever know? As a plan administrator I don’t get to see a breakdown of how many drugs were generic or the individual pricing on those. I have to fight tooth and nail every renewal period just to get a separation between the drug component as compared to other medical services or hospitalization.”

Until recently, Hugh Paton was a senior benefits consultant at Bell Aliant. Currently, he is spearheading an Atlantic Canada employer coalition looking for ways to manage the esca-lating cost of drug benefits, including differences in the public/private drug spend.

“If in fact we have been paying 40% too much for every generic drug we buy, and employees are paying 40% more than they need to, that’s something we want to investigate and reduce,” says Paton.

He also notes that public plans have created a two-tier effect — a disruption in the marketplace. “The Competition Bureau says new generic drugs are coming out at 70% to 75% of the cost of brand name drugs, not 50% or 63%. We know that’s true, because we’ve seen it in our claims experience.”

Looking for viable solutions

So what can plan sponsors do to level the playing field between public and private drug plans for the cost of generic drug?

PPNs, mail-order pharmacies and plan designs that incent employees to be better consumers have been around for many years, but they’ve been a hard sell in this country.

Mercer Worldwide Partner Brian Lindenberg thinks the “pain factor” has not been great enough to con-vince employers to make significant plan design changes.

“Employers are reluctant to tell

their employees to buy at a particular pharmacy chain so the company can get a better deal. Another reality is that employers tend to negotiate lower dispensing fees, not reduced pricing for the drugs. This is largely because pharmacies are reluctant to do so be-cause they make a big chunk of their money through these rebates.”

For McQuaid, limited penetration of the few currently available PPNs is a live issue. “Some of these strategies are based on the premise that every-one has access to everything. They don’t work when you have people liv-ing in small towns and villages where there is no in-network pharmacy.”

Managed Health Care Services is a pharmacy benefit manager operating a PPN based on over 210 stores across Canada under the banners of Law-ton Drugs, Sobey’s Pharmacy, Price Chopper Pharmacy and Thrifty’s Food Pharmacy, plus other affiliate provid-ers. Sobey’s also offers mail-order services.

MHCS Director of Business Devel-opment Leanne MacFarlane says her company works with other pharma-cies that accept their drug cards in regions where they do not have their own stores, but she readily acknowl-edges that “employer discounts are based on the number of scripts filled through the primary network.”

“Depending on how much activity is flowed through PPN, some of our long-standing clients have enjoyed savings of 15%-25% off what they would otherwise be paying,” she continues.

Nevertheless, where an employer has implemented a PPN, employees who go outside the network generally have to pay the claim and then submit an application for reimbursement.

“What few employers know is that the reimbursement client is consid-ered a cash client by the pharmacy and they are charged the highest amount,” says Sullivan. “Therefore they run the risk of having a materially higher cost base on those out of net-work claims that can water down any saving realized through the PPN.”

Towers Perrin Principal Karen Millard agrees that employers have to fully understand what they are getting into. “I’m less than impressed with what the pharmacies are coming back with in terms of what they are prepared to do. Also, the Competition

”My first big problem is separating out whether year-over- year escalation in drug plan costs is even related to increases in the cost of generic drugs,” says Jeannie McQuaid, HR supervisor at Belshield Enterprises.

“If the fact is that we have been paying 40% too much for every generic drug we buy, that’s something we want to investigate and reduce,” says consul-tant Hugh Paton..

MHCS Director of Busi-ness Development Leanne MacFarlane says, “Depending on how much activity is flowed through the PPN, some of our long-standing clients have enjoyed savings of 15%-25% off what they would otherwise be paying.”

“The gap between prices for public and private plans can vary from one drug to another and even between pharmacies, “ explains Mike Sullivan, the president of Cubic Health Inc.

Public Plan Policy inflates Private Plan Prices

Private plans sponsored by employers or employee associations account for more than 35% of expenditures on prescription drugs in Canada, while approximately 50% are covered by public plans. In contrast, 17% of prescription drug costs are paid for by individuals out of pocket, either as copayments or deductibles, or because the specific drugs are not covered, or they do not have insurance.

The Fraser Institute reports that brand-name drugs are about 53% less expensive on average than in the United States, but generic drugs in Canada are about 112% more expensive on average than the same generic drugs in the United States.

The Ontario government’s Transparent Drug System for Patients Act, adopted in June 2006, ended the traditional pricing framework for generic drugs across Canada based on maximum prices allowed under

the Ontario Drug Benefit Plan. For most generics, this amounted to

63% of the interchangeable brand refer-ence formula price. The TDSPA reduced the maximum for most generic drugs to 50% of the interchangeable brand product price.

Private payers in Ontario, and public and private payers in other provinces, did not obtain the reduced ODBP prices. The exception was Quebec, which requires that generic manufacturers provide the province the lowest price available in other provinces.

The Competition Bureau’s study found that the ODBP and Quebec prices for generic drugs introduced before October 2006 dropped 21% after the TDSPA price caps were implemented, but prices for older generics stayed about 63% of the brand name for private plans in Ontario,

and public and private plans in provinces other than Quebec.

However as patents expired and newer generics came onto the market, they were introduced at prices ranging between 70% and 75% of the interchangeable-brand product price, even where multiple suppli-ers were active in the market.

Provinces such as B.C. and Ontario have also started issuing tenders for the supply of particular medications (generic or brand name) to their public drug plans, with winning bids to be determined primar-ily on the basis of confidential rebates off the product list price.

A similar deal negotiated by pharmacy benefit manager Medavie Blue Cross, which brought the net price of Biaxin below the generic cost, was repealed by the manufacturer as a result of objections from the pharmacy sector.

March/April 2009 •employeeBenefitnewsCanada27Cover Story

Bureau won’t be happy if the decision of employees about where to buy is unreasonably restricted.”

The changing landscape

Plan sponsor response to the Com-petition Bureau’s suggested options for obtaining competitive pricing of generics has been muted to date, but there are indications that the land-scape is starting to shift.

“With a greater understanding of the issues, plan sponsors will begin to ask the tough questions like ‘how can I better manage these costs?’” says Lindenberg. “But it will take some in-novative plan sponsors and PBMs or insurers who will go out and negotiate better deals.”

Poirier says recently, for the first time, a national employer with opera-tions in small towns across Canada suggested that if they could arrange for a PPN with a major retailer in ma-jor centres, it would at least be a step in the right direction. “Even if they couldn’t get transparency, they could get a deal based on volume.”

MacFarlane cautions that the indirect funding or allowances that pharmacies do get are subsidizing the professional services pharmacists pro-vide, including maintaining stores that are open long hours in virtually every community. Nevertheless, she says that the pharmacy industry would be among the first to say the model could be modernized and is actively engaged in the process.

“Governments and the private sector have to bust out of our silos and change our business together, instead of one by one,” says Paton. “We need to stop paying pharmacists the 40% under the table, but put some of that money back on the table for the professional and consultative services pharmacists provide.”

Sullivan agrees that more trans-parency around discrepancies in public/private pricing of generics is important, and employer alliances like Paton’s group in Atlantic Canada can help employers negotiate better deals. But he thinks the future will also bring new players and more competition into the Canadian space.

“Canada has the highest generic drug prices in the developing world. Anyone who thinks floating numbers like $600 or $800 million, or a billion dollars, to the large U.S. PBMs and in-ternational health care companies isn’t going to get their attention is really not thinking clearly. U.S. PBMs make their money on the spread, and our price discrepancies could be an absolute gold mine for these groups.” —S.S.

“Even if generic pricing goes down, there is no guarantee that [Que-bec] private plans will benefit. On the private side, it’s a free-for-all,” says Johanne Brosseau, a consul-tant in Aon’s Montreal office.

“A national employer with operations in small towns across Canada suggested that if they could arrange for a PPN with a major retailer in major centres, it would at least be a step in the right direction,” says Wendy Poirier, a prin-cipal in Towers Perrin’s Calgary office.

Mercer Worldwide Part-ner Brian Lindenberg thinks the ‘pain factor’ has not been great enough to convince employers to make significant plan design changes.

Towers Perrin lawyer and Principal Karen Millard says, “I’m less than impressed with what the pharmacies are coming back with in terms of what they are prepared to do.

Bridging Quebec’s public/private pricing gapIn Quebec, by law, every individual must have

drug benefits, and anyone who is eligible for pri-vate coverage must be insured privately.

Unlike other provinces, drugs on the mandatory list cannot be “de-listed” by a private plan, as a re-sult of a tender, for example. However, the govern-ment negotiates, for both public and private plans, the cost of ingredients and forbids manufacturers from having two pricing lists. The government also limits discounts paid to pharmacists by manufac-turers to a maximum of 20% of their total sales.

The agreement stipulates that manufacturers cannot sell generic drugs at a price higher than the lowest one in Canada. As a result, Quebec ben-efits from Ontario provisions, which limit ingredient cost to 50% of the price of brand-name drugs.

For drugs listed on the mandatory formulary, manufacturers are entitled to a maximum annual price increase. Up to 2007, no price increases had been permitted for 14 years. Price increases, in excess of what the government has authorized, and the difference in ingredient cost between a generic and a brand-name drug, can be passed on to individuals insured by public and private plans.

However, two important constraints apply only to private plans:

• The claimant must be reimbursed at least 69% of the amount claimed by the pharmacists for the prescription.

• Excess amounts passed on to claimants must count toward the $927 annual maximum out-of-pocket amount; once this is used up, the plan must reimburse 100% of the prescription cost.

The Ministère de la Santé et des Services So-ciaux negotiates with the Association québécoise des pharmaciens propriétaires (representing owner

pharmacists of over 1,600 pharmacies in Québec) the amount charged to the Régie de l’assurance maladie du Québec for patients insured under the public plan, based on the following formula:

Cost of ingredient + 6% (max. $24) + $8.28 ($8.44 on April 1, 2009)

Private plans do not benefit from this agree-ment, thus pharmacists apply their “usual and customary” price. “Even if generic pricing goes down, there is no guarantee that private plans will benefit. On the private side, it’s an open market”, says Johanne Brosseau, a consultant in Aon’s Montreal office. “Just recently, carriers realized that if they want to get somewhere in terms of a negotiated agreement with the AQPP, they have to do their homework.”

Aon has developed an algorithm to calculate a “maximum eligible price” private plan claimants will be reimbursed in Quebec, to help plan spon-sors avoid significant discrepancies between what public and private plans are charged for the same prescription. Over the last 18 months, four large employers have introduced this element into their plan design.

“To the extent permissible, overall direct savings generated with this approach are about 3%, result-ing from both cost transfer and lower amounts claimed by pharmacists. However, we would save another 2% if we weren’t constrained by these rules” says Brosseau.

“Before this approach is adopted, we educate employees and teach them to shop around for the best service/price ratio” she continues. “Pharma-cists and government are feeling the heat. In spite of initial difficulties, we are very pleased with how it is going.”

28 March/April 2009 • employeeBenefitnewsCanada

Feature Story

Better disclosure could put downward pressure on DC feesBY AndreA dAvis

Fee disclosure a

The economic downpour could have a silver lining for sponsors of defined contribution plans. While plan mem-bers have seen their balances shrink significantly in recent months, some consultants say this is the ideal time

for sponsors to advertise the good deal members are getting in terms of their investment manage-ment fees.

“The fees at your local bank are much, much higher than what these individuals are paying in their group plans,” says Jill Purcell, senior invest-ment consultant with Watson Wyatt in Toronto. “And I don’t know that sponsors really do a very good job of communicating that, of selling that benefit, and therefore encouraging members to invest in the group plan rather than their own individual RRSPs.”

And while group fees are typically lower than retail fees, there’s still very little disclosure in terms of what members are actually getting for the fees they are paying.

Fees in DC plans are typically charged through the investment management fee — a bit of a misnomer because it covers more than just the fees paid to fund managers. The IMF is charged as a percentage of assets and also includes the administrative, recordkeeping and custody costs of the recordkeeper, as well as the recordkeeper’s profit margin.

Some plan sponsors also may have imple-mented a fee structure that contains fixed re-cordkeeping and administration fees, which are

charged on a per member/per year basis.What’s disclosed to members is the IMF

as a whole, but not the breakdown of its vari-ous components. “That’s okay, because for the member I don’t think it really makes a differ-ence,” says Jean-Daniel Côté, principal with Mercer in Montreal. “What makes a difference to the member is knowing that they pay more in fees for whatever money they have invested in a retail mutual fund.”

But others maintain that plan members de-serve more transparent fee disclosure precisely because they are the ones paying the majority of fees and expenses of the plan. “To ensure there’s adequate levels of accountability moving on up the chain, it’s important to have disclosure at the plan member level,” says Greg Hurst, principal and national DC practice leader with Morneau Sobeco in Vancouver.

Minimum requirementsThe International Centre for Pension Man-

agement, based at the University of Toronto, released “Fee Disclosure to Pension Participants: Establishing Minimum Requirements” last fall, which argues that plan members “need informa-tion concerning fees to make informed decisions about the services they are purchasing. To pro-vide them that information, governments may need to mandate minimum requirements as to fee disclosure in defined contribution plans.”

The recent Alberta/B.C. Joint Expert Panel (SEE FEES ON pAgE 30)

CLOudy iSSue

March/April 2009 •employeeBenefitnewsCanada29

5 fee questIonsIf you’re concerned about the fees in your plan, here are some questions you can ask your provider.

1. Can we restruCture our pricing to reflect a fixed cost component for recordkeeping and administration? “Gener-ally, the answer to that is ‘yes, we’d be happy to do that,’” says Morneau Sobeco’s Greg Hurst.

2. Can we allow members to select between two pricing regimes — one that includes a fixed cost, and one that is totally asset-based? While the answer is likely to be ‘no’, it’s worth asking, says Hurst. “De-pending on your plan, you may be delivering a good asset base to your provider, and they may accommodate that,” he says.

3. Can you break out the invest-ment management fee you pay your fund managers from the part of the fee you allocate to recordkeeping, administration and custody? “It would be very revealing for a sponsor to ask providers to break down the fees that way because they’ll get a sense of how much resistance the provider has to providing that type of break-down,” notes Hurst.

4. are any Commissions being paid relative to our investment management fees, what is the amount of those commissions and who are they being paid to? Insurers will readily provide this information, says Hurst, but if the broker who’s receiving those commissions isn’t delivering any services to the plan, then the sponsor can ask to stop paying the commission, which can lead to immediate savings.

5. Do you have a broker bonus program? Broker bonus pro-grams are funded through the overall revenue insurance com-panies earn, but the bonuses are only paid to select brokers who meet certain criteria. “It’s important for plan sponsors to know about broker bonuses because they will want to know if the advice they’re receiving could be biased,” says Hurst.

30 March/April 2009 • employeeBenefitnewsCanada Feature Story

on Pensions recommended the establishment of an occupa-

tional pension plan open to all workers in the two provinces, noting that such a plan would have sufficient economies of scale to allow all workers to ac-

cess not only quality investment management expertise, but also “plan administration services at costs comparable to those currently enjoyed by the public

sector and other large pension plans” in those two provinces.

The JEPP report recom-mends that, if such a plan is im-plemented, total management

expense ratios (including plan administration costs) should not exceed 0.5% of assets under management.

Janet Rabovsky, practice leader, Central Canada, invest-ment consulting, with Wat-son Wyatt, believes the JEPP proposal for a multiemployer plan has tremendous potential. “We would like to see a more cost-effective solution that isn’t necessarily tied to an individual plan sponsor and their ability to get assets into their plan,” she says.

And while fees can have a significant impact on benefit adequacy, the more important issue may be contribution levels. “Even before the current [financial] crisis, DC members should have been contributing something like 17% to 18% of their salary just to recover what was lost in the 2000 to 2002 period,” says Rabovsky. “You have to assume that’s gone up now. That’s a much bigger issue than fees.”

Reviewing feesIf you implemented your

plan a decade ago and haven’t looked at your fee structure since then, it’s probably time for a review. The Guidelines for Capital Accumulation Plans recommend a periodic review — based on established criteria — of all service providers, investment options, records maintenance, and decision-making tools for members.

“If returns go down, one way an employer can show added value is by negotiating better fees,” says Tony Ioanna, vice president with Aon in Montreal. “In the last six months or so, I’m seeing more clients give me the green light to go to market just for fees.”

And if you don’t ask for a better deal on fees, it’s unlikely your provider will bring up the issue. But it’s important to strike a balance between being fair and being stingy.

“You still want a good work-ing relationship with your pro-vider,” says Mercer’s Côté. “I’ve seen consultants really push the provider to the limit in terms of fees, and it’s not necessarily a good thing for the plan sponsor, because every time they ask for something from the provider after that, the provider may charge them for it.” — A.D.

Fees(FrOm pAgE 28)

Who’s NewsMarch/April 2009 • Employee Benefit News Canada 31

When benefits celebrate BollywoodBy Sheryl Smolkin

When benefits celebrated Bol-lywood at the CPBI Benefits Ball recently held in Toronto,

the result was scrumptious food, great entertainment and a significant dona-tion to the Crohn’s and Colitis Founda-tion of Canada.

A cold evening and an even chillier economy did not deter over 300 ticket holders. The master of ceremonies for the evening was Zaib Shaikh, star of the popular CBC series “Little Mosque on the Prairie” and entertainment was provided by the energetic and accom-plished Indo Jazz Dance Movement Group.

Generous sponsors included: • Event sponsors Desjardins Finan-

cial Security, Great-West Life and Sun Life Financial.

• Activity sponsors Manulife Fi-nancial, Borden Ladner Gervais and Mercer.

• Media sponsors Benefits and Pen-sions Monitor, Employee Benefit News Canada and Benefits Canada.

The beautiful table settings and flowers were enhanced by goody bags that contained generous gift certifi-cates to the Rosewater Supper Club and colourful pashminas.

Raffle winners were:• John McLaren, Future Benefits

Management Inc. (white gold and diamond necklace)

• Vicki Teti, Ontario Power Genera-tion (Golf at “The Club at Bondhead”)

• Eleanor Fleeton (comprehensive Medcan medical assessment).

Event Chair David Lester (SEI Canada) says, “The high point of the evening for me was when our three event sponsors took to the stage together to be acknowledged for their generosity and support. It gave me a great sense of pride to be associated with our industry and the CPBI Ben-efits Ball. The Bollywood Dancers were a lot of fun to watch too.” —S.S.

Indo Jazz Dance Movement Group.

Event Chair David Lester and MC Zaib Shaikh.

Colourful pashminas in the gift bags enhanced the

beautiful table settings.

Morneau Sobeco Partner Bethune Whiston and her

husband Reza Piroznia take dance instructions.

Representing event sponsors: John Stevenson, Great-West Life; Stephen McGregor, Desjardins; Dan Henry, Sun Life; and MC Zaib Shaikh.

Photography by Joel Troster