EBNC by Sheryl Smolkin

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EmployeeBenefit news canada MAY/JUNE 2008 • VOL 5 NO 3

FEATURED

Dancing around private health care BY CARLY FOSTER

ot only could private health clinics and insurance remove thousands from waiting lists across Canada, they could — and do — save employers and the economy billions in wage-loss benefits, disability payments and economic losses, the country’s most powerful physician says. “It’s a major economic policy failure to allow patients to wait for health care,” says Dr. Brian Day, president of the Canadian Medical Association and founder of the for-profit Cambie Surgery Centre in Vancouver. He refers to a study the CMA released in January, “The economic cost of wait times in Canada,” that showed wait times for just four key procedures in Canada — total joint replacement, cataract and heart bypass surgeries, and MRI scans — cost the economy $14.8 billion in 2007. And the British Columbia Workers’

(SEE PRIVATE ON PAGE 22)

ALSO INSIDE

MENTAL HEALTH

Bosses need to respect work limits BY CARLY FOSTER

startling 72% of Canadian employees say they would insist their bosses respect their work limits — schedule, tasks, and interpersonal relationships — even at the risk of losing their jobs, a new mental health survey from Desjardins Financial Security shows. “That’s interesting, and not surprising,” says Alexandra Keay, project manager, Mental Health Week, of the Canadian Mental Health Association. “People are generally taking more time for their own personal life.” Employees have had little choice, Keay says. There are more dual-income parents, people supporting elderly parents as well as their own children — the so-called “sandwich generation” — and fewer stay-athome mothers to take children to medical appointments. The “Survey on Health” interviewed almost 2,000 adults across

Canada in February and March of this year. Even more interesting survey statistics relate to the trade-offs people are willing to make for their mental health: 86% said they would take several weeks or months off to help a family member with a mental health problem (although only 1% have done so); 67% said they would decline a promotion or refuse to take on more responsibilities that meant working more hours; and 53% said they would be prepared to make less money to work fewer hours a week. “It indicated to me how significant mental health is in the workplace,” says Michele Nowski, director of disability income claims and disability management at DFS. “Even though people have financial concerns, they are prepared to do what is necessary [to improve] their working conditions.”

(SEE LIMITS ON PAGE 16)

ATTRACTION AND RETENTION

6 RETIREMENT Reshaping the DB landscape with tax-free savings accounts.

Wooing Facebook Generation with meaning, spirit

12 HEALTH Long-term care planning should be a priority for benefit managers.

BY CARLY FOSTER

30 WHO’S NEWS

Photos from EBNC and the IFEBP’s inaugural conference, The Canadian Benefits Summit. page 30

n the ‘70s, it was stability. The ‘80s: Money. The ‘90s: Balance. Now, some analysts say employee recruiting and retention is about communicating the meaning and purpose of work, even more so than the value of benefits and total rewards. The path to recruiting and retaining the so-called Facebook Generation is not through fancy gimmicks and traditional advertising — it’s through meaning, spirit and techsavvy company promotion, says Tod Maffin.

The broadcaster, blogger and social media strategist was the keynote speaker at EBNC’s recent sold-out Canadian Benefits Summit, discussing “Recruiting the Facebook Generation: How to Win the War on Talent.” Maffin pointed out that the generation — which packages Gen X and Gen Y into a loosely defined age group of 18-32 — is extremely connected, networking at a very young age, and is the first generation to gather their values, morals, ethics and perceptions of the world through themselves rather than media.

(SEE FACEBOOK ON PAGE 19)

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EmployeeBenefit news canada May/June 2008 • Employee Benefit News Canada 3

CONTENTS Editor’s Desk 4 Merging online mediums with strong total rewards programs is key to new recruitment measures.

Editor’s Inbox 5 Consultant calls for doctor education, public/private cooperation to win drug-cost wars.

Benefits Retirement

Retirement savings plans and financial education

Tax-free savings accounts could reshape the defined benefit landscape.

7 8

A financial strategy for frozen pension plans.

Features

A renaissance for defined benefit pension plans is highly unlikely.

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

10 12 15

Private health care status check

Candidly speaking

Experts argue little has changed in the private health care world, although providers say business is brisk. A virtual roundtable with top consulting firms reveals the pressing issues of benefit plan sponsors.

Preferred provider networks can pave the way to lower costs. Long-term care planning should be a priority for benefit managers. Integrating new employees with a flexible benefit plan.

Quality of Life

Who’s News 30 The joint EBNC -IFEBP Canadian Benefits Summit in photos. Industry Resources

Added-value benefits that build loyalty

RESOURCE GUIDE

Understanding the broader implications of teleworking. 32

Global Watch

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

Understanding benefits without borders

PROVIDER PROFILES

Blended health care systems promote innovation around the world.

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

20 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. POSTMASTER: Please send all U.S. address changes to Employee Benefit News Canada/SourceMedia, 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. © 2008 Employee Benefit News Canada and SourceMedia, Inc. All Rights Reserved.

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4 May/June 2008 • Employee Benefit News Canada

EDITORIAL HEADQUARTERS

Editor’s Desk

1325 G Street N.W., Suite 900 Washington, DC 20005 202/504-1122 • Fax: 202/772-1448 Publisher/Group Vice President: Jim Callan Editorial Director: David Albertson Editor-in-Chief: Sheryl Smolkin Managing Editor: Carly Foster Associate Editors: Molly Bernhart and Lydell Bridgeford Director of Editorial Projects: Marsha Turney Senior Art Director: Hope Fitch-Mickiewicz Associate Art Director: Robin Henriquez

EDITORIAL ADVISERS Peter C. Arnold, National Practice Leader, Investment Consulting, Buck Consultants, an ACS Company; John Cardella, Executive VP of Human Resources, Ceridian Canada; Mike Collins, VP of Marketing, Canadian Pension Operations, Manulife; Cheryl Craven, VP of Human Resources, Toronto Sick Children’s Hospital; Brian A P FitzGerald, President and CEO, Capital G Consulting Inc.; Wes Jones, Manager Group Product Development, Great-West Life; Karen Kesteris, Director Product Development and Marketing, Green Shield Canada; Brian Lindenberg, National Partner, Mercer; Laura Mensch, Senior VP of Central/Western Region Health Strategies Practice Leader, Aon Consulting; Jeffrey Stinchcombe, VP of Corporate Development, HealthSource Plus; Bethune Whiston, Lawyer and Principal, Pension Practice, Morneau Sobeco; Heidi Winzeler, Counsel, Osler, Hoskin & Harcourt LLP (New York); Mark Zigler, Pension Department Head, Partner, Koskie Minsky LLP

Recruiting the Facebook Generation Aligning the medium and the message BY SHERYL SMOLKIN

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efits, a flexible, family-friendly culture and opportunities for advancement.

hen I heard Tod Maffin, the keynote speaker at EBNC’s Canadian Benefits Summit, talk Becoming a top employer about how the Facebook Generation wants One interesting take on what is required to attract to change the world, I immediately thought about and retain young people is the selection process for my two 20-plus offspring. Canada’s Top Employer for Young People competition She is a journalism graduate and an activist who organized by the editors of Canada’s Top 100 works in communications for a union, and, in her Employers in Maclean’s magazine. spare time, writes a column for a community newsEach employer is evaluated in terms of the propaper. She is passionate about equity isgrams they have to attract and retain sues and has chosen life in the younger workers, including benefits nonprofit sector so she can live her valsuch as tuition assistance and the availues. ability of co-op or work-study programs. He is a graduate student in chemistry Other factors considered are: at UBC, and this past year he volun•Employer-sponsored training proteered at the David Suzuki Foundation. grams, including benefits such as finanHe cycles or takes public transit, but cial bonuses paid when employees plans to join a car co-op in the near fucomplete certain courses or professional ture. Currently he is researching ethical designations. funds as investment options for a small • Career management programs, and inheritance. tools such as companywide skills manAnd whether they want to buy or sell agement inventories that can help Sheryl Smolkin, furniture, invite 250 “friends” to a goodyounger workers advance faster in the Editor-in-Chief bye party or look for a job, their first organization. stop will be craigslist, Facebook or While true skill mismatches do exist MySpace rather than newspapers or other traditional in certain sectors and locations, there is also considmedia. erable evidence to suggest that there are many underemployed young people who would jump at the chance to work for a company offering full- time, Changing tactics quality work. So what does that mean for you, as employers? In fact, a recently released Canadian Policy According to Maffin, if you want to attract and reResearch Networks report reveals that nearly onetain Gen X and Gen Y, traditional recruitment using mission statements, quarter-page newspaper ads and quarter of young Canadians are working at low-paying jobs beneath their skill level, such as pouring insincere marketing won’t work on this tech-savvy coffee and answering phones. That’s the highest group. “Your company will collapse,” he said bluntly among 16 OECD nations and worse than the U.S., in an interview after the presentation, when asked what will happen if organizations continue their stan- where 19% of youth say they feel overqualified in their jobs. dard recruitment measures. The report recommends developing more co-op Now, it makes total sense to me that if you want to programs between schools and employers, encouraghire a certain group of people you have to hang out in the places where you are most likely to find them, and ing more students to consider trade schools and more study on the gap between employers’ perception of many executives are also finally getting it. an employee’s qualifications and the educational reIn a recent study conducted by Robert Half quirements of their job. Finance and Accounting, two-thirds of executives interviewed believe professional networking Web Sites — like LinkedIn — will prove useful in the search for The medium and the message job candidates in the next three years. And one in Based on the bird’s eye view I get of my kids and four cited social networking sites — such as Facebook their friends, who are also my Facebook friends, I’m or MySpace — as a recruiting resource they plan to all for using the viral nature of social networking as a tap. tool for attracting tech-savvy young people. But surely technology is just a tool, and when it But I think they would agree with me that the comes right down to it, regardless of how you connect medium and the message are equally important. The with prospective hires initially, your organization best recruiting tool — on or offline — is a happy emwon’t be able to hire or keep all the necessary people ployee who is proud to say that your company is a unless you have competitive compensation and bengreat place to work. — S.S.

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May/June 2008 • Employee Benefit News Canada

Editor’s Desk Winning the drug wars Call for physician education, public/private cooperation BY SHERYL SMOLKIN

alifax-based Bell Aliant’s Senior Benefit Consultant Hugh Paton has a keen interest in innovative benefit solutions, including drug-cost control. We have had an active correspondence since he alerted me to the pilot project “Prescribe the Solution.” (See “Employer-funded test project educates doctors on Rx costs,” January/February EBNC.) When I invited Hugh to further share his views with us in the “Editor’s Inbox,” we had the following broadranging discussion.

EBNC: What do you feel passionately about? Paton: Two strong passionate areas. One is that we are wasting money on certain high-cost drugs when we should be saving it and spending the savings on new cancer drugs and other emerging drugs like biologics. The second area is that all of the decisions that are made about drugs and coverage for health, taxes and benefits are all made in such silos. I wish we could find a way to get together and make better decisions. EBNC: Can you expand on your concerns around spending wisely for drugs? Paton: Plan participants themselves spend money on drugs because there is usually some level of copayment or cost-sharing in their plan.

EBNC: Are you talking about generic drugs vs. name brands? Paton: Not just. That’s certainly part of it, but it’s just the tip of the iceberg. There are generics, but there are also less expensive name brands. If you look at Lipitor and Crestor, which are cholesterol lowering drugs, there are probably five or six more out there, some of which are generic and others are name brand. But nobody really understands which is the best of all available drugs for each person, and how much it costs, and all the history about prescribing guidelines. Doctors have very limited time to understand the interactions and the costs of all the drugs.

Hugh Paton

EBNC: Considering specific drugs may be more appropriate for certain individuals, to what extent would you limit the drugs that could or would be prescribed? Cutting off supply may improve costs, but will it improve outcomes and how will employees react? Paton: I would put it back to the doctors. I wouldn’t cut it off at all or limit the plan. We have to try and get doctors to change their prescribing habits because doctors are the gatekeepers. They hold the key to the whole equation.

manufacturers in Ontario are upping their prices, and the government program (ODB) has delisted certain generics from their formulary.What does that mean for the industry and for users? Paton: Legislation in Ontario, Nova Scotia and Newfoundland, for example, is unhinging the way generic rebates to pharmacies happen, and governments are taking more advantage of cost savings by further limiting generic pricing. The net result is, because the income of generic manufacturers is being reduced by government plans, they are looking for ways to increase their income in sales to nongovernment plans. From my industry sources and providers, what I see is the cost of generics is going up. Generics are no longer 60% or 70% of the cost of name brands, or less. They are creeping up to be 70% or 80% or 90% of the cost of brand-name drugs. EBNC: Wasn’t that inevitable? If you squeeze them in one way they will raise the cost another way. Paton: Exactly, which leads to my second rant — why can’t, and how can, private plan sponsors work together on this? It’s not going to work to squeeze one end of the bubble and just pass costs over to someone else. It’s the same thing we saw in the

“We need to jointly educate doctors about the costs of specific drugs. Then let’s use that $10 million we’ve saved to improve our health care system,” says Halifax-based Bell Aliant’s Senior Benefit Consultant Hugh Paton. Plan sponsors may be governments (for seniors and other recipients) or company plans (for actives or retirees), and they obviously spend large amounts on drugs. None of us is really managing our drug dollars wisely. There are cost-effective alternative choices for everything and, in a drug plan, it seems like no one is looking at cost-effective forms of coverage because its a very, very difficult and complex process to understand how drugs get purchased and paid for in Canada.

EBNC: Are you saying physician education is the key to cost control? Paton: Yes. At this point I do. That’s my pet peeve, or my rant. The main message is to stop wasting money on the Cadillac, or the new car, and start thinking about when the Chevy, or a used car, may be good to prescribe. The other part is to get employees to accept and understand that generic drugs aren’t worse than brand name drugs. EBNC: It sounds like the generic drug

past — where employers try to squeeze the plan to save themselves money, the costs are just passed on to employees. Well now the government is squeezing the bubble and passing the cost on to employers. Indirectly, generic companies are charging us more for drugs, and employers pass it on to employees by cutting back the plan — same old, same old. What I’d rather do is go back to the government and say, “We are a

Canadian association of plan sponsors. Would you please work with us and the drug makers and sellers and claims administrators, instead of doing your own thing to save money on drugs? All you are doing is pushing costs on to us.” EBNC: So what would be an example of working with employers? What would you like to see? Paton: Private and public plan sponsors could work on the biggest cost of drugs for their programs. There is typically a top 5 or a top 10 list. For example, you would likely see statins, cholesterol-lowering medications, heart drugs and antidepressants, such as SSRIs. We need to jointly educate doctors about the costs of specific drugs. Then let’s use that $10 million we’ve saved to improve our health care system. EBNC: We have 10 provinces, plus territories. The drug plans are lobbying on one side, and you have employers on the other. How do you line everyone up? What’s the method or the motivation here? Paton: It’s a hard thing to do. We are a big country, and it’s a complicated, complicated process to just follow the chain of events from one drug being sold in Canada to one patient who gets it prescribed by a doctor and goes to a pharmacy to get the drug. So we can start small and do a pilot study. Another way is like running an election — you know the phrase, “It’s not an elephant.” It’s a very big thing to have an election in a country like Canada, but we do have them, and they are done, and they are not impossible. You start at the riding level — a relatively small area — and you chip away at it, and you organize it that way. So the same thing can be done with fixing the health care system; we’ve had so many people look at it and so many panels of organizations and politicians and groups, but there’s never been much done to bring private drug payers into the discussion. These are the companies and unions that sponsor private health insurance in Canada, and I think they are all willing to do something. If we are not proactive now, we will be doomed to repeat the mistakes of the past to the detriment of all involved. — S.S.

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6 May/June 2008 • Employee Benefit News Canada

Retirement Tax-free savings accounts could reshape DB landscape BY DOUG CHANDLER

he evolution of defined benefit pension plans has largely been shaped by limits on tax-sheltered investing for individuals. However, because tax-free savings accounts announced in the 2008 Federal Budget represent a significant relaxation of those limits, we can expect some of the contortions in retirement income plans to disappear over time. Before the budget announcement, the single most significant event in the evolution of tax rules for Canadian savings plans was the adoption of new, integrated registered retirement savings plan, registered pension plan and deferred profit-sharing plan rules in 1990. RRSP limits were increased dramatically, although the effect of the initial announcement was dampened by postponements in 1992, 1995 and 1996. The pre-1990 system set one RRSP limit for pension plan participants — with a dollar-for-dollar deduction for employee contributions to pension plans — and a separate, higher limit for individuals who did not participate in a pension plan. This discouraged employers from setting up lowcost pension plans that only addressed part of their employees’ retirement income needs and discouraged employee contributions, except in cases where the pension plan was intended to provide full replacement of preretirement disposable income. The new system, first proposed in 1984 and rolled out through announcements, legislation and regulations in 1989-1991, integrated RRSP contribution limits with pension plan and deferred profit-sharing plans through “pension adjustments” reported to employees on their T4’s. Defined benefit pension accruals were deemed to be worth nine times the annual pension amount, regardless of the employee’s age or the ancillary

Contribution limits for individuals who do not participate in a pension plan or DPSP (after-tax value, adjusted for inflation from effective year to 2008) New Limit 2,500 4,000 5,500 7,500 15,500 15,500 15,500 15,500 18,000 22,000

RRSPs introduced Limits increased Limits increased Limits increased New system Increases postponed Increases postponed Limits reduced Limits increased Limits increased TFSA's introduced

Announcement 1957 1972 1976 1986 1990 1992 1995 1996 2003 2005 2008

-$2,000

$2,000

$4,000

$6,000

$8,000

$10,000

SOURCE: Watson Wyatt

benefits attached to the accruals. At the time, employers and actuaries complained that the factor of nine was unfair to private-sector pension plans, since it was built on the presumption of rich early retirement and indexing benefits typically found only in the public sector. The maximum contribution to an RRSP was only $11,500 in 1991, and dollar limits prevented many professionals and managers from tax-sheltering their full retirement savings. With bond yields in the range of 10%, saving for retirement on a money-purchase basis was more tax-effective than typical nonindexed private sector DB plans. Many employers responded to the new rules by: • Reducing DB pension accrual rates and adding ancillary benefits to provide comparable DB pension value with lower PAs. • Reducing DB pension accrual rates and adding Group RRSPs. • Adding optional “flex” contributions to their DB pension plans; or • Simply converting to DB plan designs pre- and post-TFSAs more tax-effective money Typical plan DB plan design changes Possible plan DB plan design changes purchase plans. responding to 1990 reforms responding to TFSAs announced in 2008 How times have Before After Before After changed! 2% career average 1% final average 1% final average 1% career average Bond yields have fallen from 10% to 4%, the limit Ad hoc indexing Partial indexing Partial indexing guaranteed Indexing linked to guaranteed fund performance on RRSP contributions Pension for member’s 10-year guarantee 10-year guarantee Pension for member’s will rise to $22,000 in lifetime only lifetime only 2010, and the threat to DB Normal cost is 6% of pay Normal cost is 6% of Normal cost is 9% of pay (at 5% Normal cost is 6% of plans comes from high (at 8% valuation interest pay (at 8% valuation valuation interest rate) pay (at 5% valuation cost and volatility rather rate) interest rate) interest rate) than their poor tax-effec$3,500 RRSP room $5,500 RRSP room $7,800 RRSP room for employee $7,800 RRSP room tiveness. DB pension reduced to $1,000 by tax for employee earearning $80,000 for employee earning reform ning $50,000 $80,000 plus $5,000 plans are once again more TFSA room tax-effective than money Gains are used for contri- Gains are used Gains are used first to offset Gains are used for purchase arrangements, bution holidays or benefit for contribution solvency deficit then for earnings upgrades but no one cares. upgrades holidays contribution holidays or indexing With the introduction Risk-sharing is ill-defined Risk is largely borne Risk is largely borne Risk is largely borne of TFSAs, employers can by employer by employer by plan members SOURCE: Watson Wyatt design DB pension plans

that suit their objectives without concern that they need to give good value for foregone RRSP contribution room. Employees young and old will look to TFSAs for flexible, multipurpose wealth accumulation and rely on government and employer pension programs for a baseline of taxable retirement income. Employers seeking to mitigate risks in their DB pension plans will be free to consider risk-sharing arrangements such as career-average, nonindexed pension plans that only provide inflation protection to the extent it can be supported by investment returns. Plan design ideas such as this would have been discarded as recently as a decade ago simply because they failed to take full advantage of scarce registered savings room. The full impact of TFSAs Doug Chandler may not be felt for a generation. Baby boomers are still struggling with inadequate retirement savings room because of the absence of carry forward features in the RRSP system that existed prior to 1990. In contrast, by the time today’s teenagers begin to save for retirement, they will have large balances of unused TFSA and RRSP contribution room. Employers are making long-term decisions concerning their retirement income plans now. If they are to make sustainable decisions, they need to consider the way the landscape has changed and how the new TFSA rules will shape savings strategies of the next generation. Failure to do so could lead to plan designs that would have been appropriate a decade ago but will not be attractive to the workforce of 2020. — E.B.N.C. Doug Chandler is a senior consulting actuary at Watson Wyatt Worldwide’s Calgary office. He can be reached at infocanada@watsonwyatt.com.

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May/June 2008 • Employee Benefit News Canada

A financial strategy for frozen DB pension plans BY STEVE BONNAR

reezing a defined benefit plan is an implicit decision to exit sponsorship, whether it is done immediately or over the next 50 years. As a result, the length of time during which plan finances must be managed has, to some extent, been shortened. Due to this change in time horizon and Steve Bonnar because DB plans expose their sponsors to risk in their financial statements, it makes sense to develop a dynamic exit strategy that will allow the sponsor to: • Understand and quantify accounting and economic costs of available exit strategies. • Articulate a multi-year plan that will identify trigger points for partial or complete exit actions and dynamic investment strategies to achieve financial objectives along the way.

Pension risk A sponsor is exposed to many forms of pension risk but the financial aspect of that risk basically comes in two flavours: • Market risk that has the expectation of additional return, such as equity risk or credit risk. • Interest rate and inflation risk that are generally viewed as uncompensated risks. These risks impact the pension plan by causing volatility in funded ratios, pension contributions and pension expense. From the perspective of the sponsor, it is important to consider whether the pension plan acts as a natural hedge, running counter to the sponsor’s business cycle, or in a way that exacerbates business cycles. In a simple fashion, DB plans can be thought of as producing “bad news” when equity markets are poor and bond yields are low. Poor equity markets are typically a leading indicator of poor economic times, while lower bond yields are viewed as a sign of low inflation. Each sponsor should assess its expected business performance across these two dimensions. If the pension plan exacerbates business

cycles, sponsor risk tolerances should be lower than if the pension plan acts as a natural hedge. The key point is to recognize the financial interplay between the plan and the sponsor, and manage plan finances accordingly.

Developing a directional strategy Once risks and risk tolerances have been identified, the sponsor must establish a directional strategy for their “end game.” The directional strategy should address both the implications of potential actions, as well as at least a tentative timeline for exit. Three main types of implications must be assessed — operational, accounting and economic: • Operational issues include such things as whether there is continuing accrual of pension benefits and a continuing final earnings promise for accrued benefits. In the presence of either of these, it may not be possible to exit from sponsorship and still meet HR objectives. • Accounting issues include any one-time settlement impact (e.g., in the event of an annuity purchase, some portion of costs that had been deferred to future years would have to be recognized), as well as any impact on future years’ pension expense. • The key economic issue is the trade-off between expected return and volatility (in an asset/liability sense) of investing in an annuity contract or a matched bond portfolio, compared to retaining equity exposure in the pension fund. In addition to assessing risk and developing a directional strategy, a process must be instituted for the ongoing monitoring of readiness to execute a partial or complete exit. This planning process will ensure that going forward, the frozen pension plan does not wreak havoc on corporate financial statements. — E.B.N.C. Steve Bonnar is a senior consulting actuary and a principal in the Toronto office of Towers Perrin. He can be reached at steve.bonnar@towersperrin.com.

Investment optimization process for frozen plans BY KEITH WALTER The goal of the investment strategy for all defined benefit plans should be to deliver the assets needed to provide pension benefits when they are needed. This is particularly important to keep in mind when dealing with frozen pension plans. An investment optimization approach for frozen pension plans might look something like this: Keith Walter Determine the nature of the liabilities. Typically, the liabilities themselves can be represented by a blend of nominal and index-linked bonds. The more mature the plan and the higher the ratio of retired to active members, the more fixed and predictable the liabilities will be. Find the closest risk free asset that matches the liability. The starting point for optimization should be a “risk free” asset mix that matches the liabilities as closely as possible. This provides a benchmark against which other options can be compared. It is important to note that a perfect asset/liability match with a “risk free” asset mix may eliminate any surplus volatility, but may also guarantee a permanent deficit for the plan. In most cases, this is not a viable strategy. Pursue higher return by investing in “risky assets.” In order to achieve the goal of providing long-term pension benefits, taking some investment risk is usually required. In most cases, this would involve some form of equity investment. Risk is a scarce resource to be used in the search for return. In all cases, the pursuit of a higher return strategy should be measured against the risk deployed. Given the benchmark of a “risk free” asset mix that matches the liabilities, risk should be used only where the expected marginal return is high. Build a consistent governance framework. Investment performance measurement must be consistent with the overall approach. Measuring performance of the investment strategy against the liabilities themselves is key to understanding both the risk and return of the investment approach. The governance framework should ask and answer key questions: How much investment risk is acceptable, and is the risk earning an appropriate return? A measurement framework consistent with the overall approach would look like this:

How It Works Short & Long Duration Nominal Bonds

Real Return Bonds

Other Asset Classes

Pension Plan Cash Flows

LIABILITY CASH FLOWS

Client Report

Review (May Initiate Rebalance) SOURCE: MFC Global Investment Management

While there are challenges in implementing an investment optimization approach for a frozen pension plan, the key is to take reasonable steps for the plan’s long-term stability. Keep in mind that it is better to do approximately the right thing, instead of precisely the wrong thing! Keith Walter is the SVP at MFC Global Investment Management. He can be reached at Keith_Walter@mfcglobal.com.

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Retirement

8 May/June 2008 • Employee Benefit News Canada

DB pension genie is out of the bottle Legislative change will be too little, too late, experts say to 9% who did so in the last 24 months. Nevertheless, Markham says he knows of only two employers with DC plans who went back to DB. “It’s a complex world. It’s hard to see new DB plans coming in. What’s more important is that the DB plans we have stay intact, and the jury is still out on that,” he conceded.

Expert commissions explore options

BY SHERYL SMOLKIN

significant number of recently surveyed business leaders acknowledge that DB plans are superior for workforce management, but even in a period of labour shortages, experts say a renaissance for defined benefit plans is highly unlikely. Attracting (70%) and retaining (76%) high-performing employees are of great concern to the CFOs and VPs of human resources responding to the Watson Wyatt/Conference Board of Canada 2008 “Survey on Pension Risk.” Forty-one percent of survey participants said DB plans are the most valuable for retaining high-performing employees, and 37% indicated that DB programs allow them to better manage employee exits in an orderly fashion. Yet CIBC’s former VP of Global Pension and Benefits Gretchen Van Riesen told Pension Summit participants, “The DB pension genie is out of the bottle, and all of the creative solutions under development by expert commissions across the country won’t put it back.”

Pension crisis recedes While in 2006 80% of CFOs surveyed believed there was a pension crisis, only 57% hold similar views today. In contrast, VPs of HR were somewhat less optimistic. Sixty-two percent report

concern about the pension environment, and 43% believe it will be longlasting (up slightly from 40% last year). Manulife’s VP Global Pensions and Benefits Sylvie Charest said she is not surprised at CFOs being less concerned about the pension crisis. “Maybe everyone had a wake-up call in the early 2000s and put a good plan in place to deal with changing expectations.” Commenting on the divergence between views of CFOs and VPs of HR, Watson Wyatt Canada’s Director of Pension Innovation Ian Markham said: “It could be that VPs of HR are one year out of date. If they are to be given extra power to make plan design decisions that respond to labour shortages, they need to keep their knowledge up about what’s going on in the finance world.” Survey results also show DB to DC conversions are slowing down, with less than 3% of participants expecting to convert in the next year as opposed

“If you really want employment pensions for all Canadians that are fair, equitable and covered by uniform regulations, we may have to expand CPP,” CIBC’s former VP of Global Pension and Benefits Gretchen Van Riesen said.

Van Riesen spoke on a panel with Markham, a member of the Ontario Expert Commission on Pension Panel; Osler, Hoskin & Harcourt partner, Christopher A. Brown, co-chair Alberta/B.C. Joint Expert Panel on Pension Standards; and Michel Lizée, pension trustee, University of Quebec Pension Plan. Markham and Brown outlined the mandates of their respective provincial panels, including exploring industrywide multi-employer pension plans and re-energizing the DB system. Lizée discussed 2007 regulations, which have established the new Quebec member-funded pension plan and MFPPs under development by both the Quebec Federation of Labour and a large coalition of community and women’s groups. Of Pension Risk Survey participants, only 10% of DB plan sponsors (traditional formula), and 14% of DC plan sponsors, said they would consider joining a well-managed MEPP. “These are very intriguing and inventive ideas — industry MEPPs, employee-paid plans — but I don’t think they will be broadly accepted by the private sector,” Van Riesen said. During the Q&A period, Manulife’s Charest agreed any future legislative change will be too little, too late. “We have employer fatigue. We are tired of all of these legal challenges, this bureaucratic nightmare, this inertia, distributing $5,000 of surplus that originated 20 years ago and going

“What’s more important is that the DB plans we have stay intact, and the jury is still out on that,” said Watson Wyatt Canada’s Director of Pension Innovation Ian Markham.

through a long process to do that,” said Charest. “Do you really think we would go back and re-open our DC plan to move into an employer-friendlier DB plan?” Ontario, Alberta/B.C. and Nova Scotia expert commissions are looking for legislated solutions to improve the DB pension environment, but Van Riesen is not optimistic about their ultimate success. In fact, she suggested that Canada’s fragmented regulatory regime is actually adverse to expansion of coverage for the majority of Canadians not currently covered by workplace retirement programs.

CPP top-up to enhance coverage “I thought I’d never hear myself saying this, but if you really want employment pensions for all Canadians that are fair, equitable and covered by uniform regulations, we may have to expand CPP,” she said. In a lunchtime address to the Pension Summit, the Canadian Pension Plan Investment Board chairperson, Gail Cook-Bennett, expressed concern that the current governance model might not be able to easily accommodate a new employer-sponsored component, but noted, “There may be mechanisms for doing this — to separate out these additional amounts so it is clear these are personal contributions — but it would be a bit of a challenge.” Whether a CPP top-up is DB or DC, Van Riesen believes employer participation should be optional. She also concedes that this might have a huge impact on the pension industry, and could potentially impact the jobs of many people who were attending the conference. Nevertheless, she concluded, “We have to deal with these tough questions if, at the end of the day, our goal is good pensions for all Canadians.” — S.S.

Manulife’s VP Global Pensions and Benefits Sylvie Charest thinks it’s too little, too late: “Do you really think we would go back and re-open our DC plan to move into an employer-friendlier DB plan?”

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10 May/June 2008 â&#x20AC;˘ Employee Benefit News Canada

Health Preferred provider networks can pave the way to lower costs plements the preferred provider arrangement. For example, with a plan that reimburses dental at 100%, there is no incentive for the employee to use a preferred provider. Instead, the plan design should require employees to pay a significant portion of the service cost. As illustrated in the chart, below, let us assume the cost of a standard recall is $125, and the current plan pays 90%. The plan pays $112.50, and the visit costs the employee $12.50. If the plan design is modified and a PPN is introduced, when the employee selects an in-network dentist, there will be no copayment, and the 100% reimbursement by the plan will be $93.75. In contrast, if the employee selects an out-of-network dentist, reimbursement is at 70%, and s/he has to pay $37.50 out-of-pocket. As a result, where the employeeâ&#x20AC;&#x2122;s dentist is in-network, the plan saves 17%. Savings to the plan are even higher (22%) when the employee selects his own dentist.

BY LISA DONAVAN

hile preferred provider networks are used extensively in the U.S., they are much less common in Canada. Yet preferred provider arrangements are a way to save 20% of benefit costs while providing the employee with a benefit enhancement. Many carriers offer such arrangements as one of their own product offerings. For example, Green Shield has a national dental network, Alberta Blue Cross offers a provincial dental network and the Spencer Dental Network is available in Ontario. Spencer also has a national vision care network. All of these networks provide discounted services to their subscribers. The two ways that preferred provider networks typically operate are discussed below.

Traditional Discount Program In the traditional discount program, services are offered at a lower-than-market cost, which is an obvious way to generate benefit cost savings. For example, a dental fee guide lists a service at market price, but with a traditional discount program, the provider offers the same service at a discount, such as 25%. The question then becomes what incentive is there for an employee to use a preferred provider, rather than a provider of their own choice, if they are not affected by out-of-pocket expenses? A vital piece of the puzzle in order to attain any cost savings is to develop a plan design that com-

Enhanced Benefit Program The second type of preferred provider arrangement is an enhanced benefit program where the consumer receives a higher value for his/her benefit dollar. For example, if the benefit plan covers a maximum benefit of $200 in vision care, and the employee chooses to go to a preferred provider with an enhanced benefit value of 20%, then they would actually be reimbursed $240 toward the cost of their vision care purchase. Example Plan Savings provided with a Preferred Provider Arrangement No Preferred Provider

Preferred Provider Arrangement

$120. 00 Cost to the Plan Employee out of Pocket Cost $100. 00

$80. 00

$60. 00

$40. 00

$20. 00

$0. 00

Current Plan at 90%

Outside Network at 70% 17% Plan Savings

Inside Network at 100% 22% Plan Savings

Total Claim of $125.00

Cost to the Plan

Employee out of Pocket Cost

Plan Savings

Inside Network at 100% Inside Network at 100% Outside Network at 70%

$112.50 $93.75 $87.50

$12.50 $0 $37.50

17% 22%

SOURCE: GMS Insurance Inc.

The enhanced benefit program is offered by Spencer Vision. The company has a very large network of vision care providers across Canada, including franchises such as Hakim Optical and other companies with a national presence. Again, proper plan design is imperative. For example, if simple cost reduction is desired, a plan that currently covers $150 toward vision care may be reduced to $135. If the employee purchases inside the network, he/she still receives coverage of $162 through the benefit enhancement of 20%. The employer savings is direct, as the benefit is assigned to the provider at point of purchase. The plan Because insurance only pays $135 to the carriers are not provider. The provider abmotivated to develop sorbs the additional $27 such arrangements, cost as per the network [PPNs] must arrangement.

Few Canadian networks

frequently be employer/consumerdriven initiatives, says Lisa Donovan.

The biggest challenge for Canadian employers interested in using PPNs is that they are few and far between. Because insurance carriers are not motivated to develop such arrangements, they must frequently be employer/consumer-driven initiatives. In some cases, we recommend that employers develop a preferred arrangement without the help of an established network. For example, if ABC Company was located in Kitchener, their consultant may source four dental offices in the area and strike a deal. Then arrangements have to be made for the carrier to integrate the PPN into their claims system. It is apparent that establishing PPNs can be a win-win proposition for both employers and employees. Employees are encouraged to be good consumers in order to gain an improved benefit option, while at the same time employer costs can be dramatically reduced. This valuable approach to cost-containment can also be extended to other areas such as massage therapy, where utilization has escalated significantly in recent years. Although there can be preliminary challenges in setting up networks, amending plan design and communicating to employees, an informed benefit adviser/consultant and a proactive, forward thinking carrier can easily resolve these issues, paving the way to both lower costs and better benefits for both employers and their employees. â&#x20AC;&#x201D; E.B.N.C. Lisa Donovan is a senior benefits specialist with GMS Insurance Inc. She can be reached at ldonovan@gmsinsurance.com.

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Health

12 May/June 2008 • Employee Benefit News Canada

Planning for the inevitable A wake-up call for long-term care planning • Eldercare information and referral, provided independently or through employee assistance programs. • Flexible hours that allow employees to make up work during evenings and weekends; management training to support employees’ needs. • Talks by experts on long-term care. • On-site support groups of employee caregivers. Compassionate care benefits under the federal Employment Insurance program allows up to six weeks of paid leave to care for or support a “gravely ill” family member, but these benefits come with strings. The family member must be at risk of dying within 26 weeks, and the employee must prove a drop in wages of more than 40%.

BY CAROLYN HIRSCHMAN

elping workers plan for the long-term care needs of aging relatives and, ultimately, themselves, isn’t on the to-do list of most employee benefit managers, but it should be, advocates say, given Canada’s aging population and the high cost of this type of care. “Employers are not involved for the same reasons as the public,” says Patricia L. Randall, founder of Vancouver-based LTC Long-Term Care Planning Canada Inc., which promotes long-term care planning. She ticks off common misperceptions: “It doesn’t affect me. I’ll deal with it when it arises. Someone else will take care of it.” This benign neglect reveals a shortsighted attitude about an issue that affects businesses’ bottom lines, says Randall, author of “Let’s Talk - The Care-Years,” published earlier this year. Working caregivers cost Canadian companies $16 billion annually, she says, citing a 2003 study by consulting firm Watson Wyatt. The costs come in many forms, including absenteeism and work interruptions. In addition to lost work time, caregivers often face stress from juggling work and family demands. Randall estimates that one in five Canadians 45 and older provides eldercare equivalent to one workday per week.

Getting older There’s no denying the graying of Canada. People age 65 and older made up 13.7% of the population in 2006,

compared with 13% in 2001. As baby boomers age — the first of them turns 65 in 2011 — the number of seniors will rise from 4.3 million to 8 million by 2026, making up 21.2% of the population, Statistics Canada projects. Though many seniors are healthy, some face diseases and disabilities that make them unable to live totally independently. They need long-term care — a term that encompasses everything from personal assistance to cook or run errands to round-theclock care in a nursing home. Only 7% of the elderly, mostly those 85 and older, live in institutions, according to the 2001 census. The rest live at home, cared for by family and friends — most of whom hold jobs and need support themselves to balance work and family needs. Workers take a variety of steps to juggle these needs, Randall says, including the use of sick and vacation leave, reduced hours, making phone calls at work and even quitting their jobs. Some employers are more supportive than others. “From my experience, employers can do more,” says Karen Henderson, who heads the Toronto-based Long Term Care Planning Network, which advises financial planners and other professionals on long-term care issues. “A few lunch-and-learns won’t solve the problem, which isn’t going to go away. It’s going to get worse.” Employers can adopt low-cost programs to help working caregivers, Henderson and other experts say, including:

Planning ahead Employers can also help employees plan for their own possible long-term care needs by offering or at least publicizing long-term care insurance, or “living benefits.” Many workers mistakenly believe that provincial health plans and employer-sponsored group

Patriica L. Randall

Karen Henderson

Ken McNaughton

health plans will cover their costs. “There’s the illusion in Canada the government’s going to take care of us. We’re surprised when we find the benefit is pretty minimal,” says Ken McNaughton, a retirement planner in Victoria, British Columbia, for insurance and investment firm ZLC Financial Group. Provincial long-term care services vary widely in the types of services and levels of benefit provided, and funding has been reduced in the past few years, he notes. People may wait up to four years to enter a government-run nursing home or pay dearly out of pocket for a private facility. For example, a nursing home in Ontario, regardless of ownership, costs residents $1,544 per month for a basic room, $1,787 for a semi-private room and $2,091 for a private room. Home care, which provides assistance such as visiting nurses, help with bathing and meal delivery, generally costs $15 to $25 per hour for homemaking and personal care and $25 to $65 for nursing care, according to insurer Sun Life Financial. How to pay for these services if needed? Beyond the government subsidy, people rely on personal savings or long-term care insurance, which covers at-home and/or residential care for individuals unable to independently perform at least two “activities of daily living,” such as bathing or dressing, or who have a cognitive impairment such as Alzheimer’s disease. Available in Canada since the mid1990s, long-term care insurance is largely sold on an individual basis through insurance agents and financial planners but is emerging on a group platform. Yet most employers don’t offer it because other benefits are deemed more important to attract and retain employees, McNaughton says. As a result, the group market for long-term care insurance in Canada is small, accounting for $2.6 million of the $56.4 million in premiums written in 2006, according to the Canadian Life and Health Insurance Association. Products are few and far between. For instance, RBC Insurance offers a “guaranteed standard issue” product to employee groups of 15 or more, or 10% of the total group. The individual contracts — which are portable from job to job — require less underwriting than nongroup policies. (SEE PLANNING ON PAGE 14)

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Health

14 May/June 2008 • Employee Benefit News Canada

Planning (FROM PAGE 12) Toronto-based ACE INA Life Insurance last year designed a group product for an undisclosed large labor union, with lower pricing and less underwriting than in the individual market. The insurer plans to market a version for employers later this year, say Eddy Levy, vice president of sales and marketing. “We think there’s a real opportunity on the group side,” he says. “The big advantage of a group product is it gets this type of coverage to the middle market,” beyond the wealthy individuals who purchase individual coverage now. Long-term care insurance and other long-term care support isn’t common in the workplace now, but that may change as Canadian workers grow older and face the demands and cost of caring for aging relatives — and themselves — in the not-too-distant future. — E.B.N.C. Carolyn Hirschman is a freelance writer from Maryland who frequently cocontributes to Employee Benefit News and Employee Benefit News Canada.

Paying the piper Long-term care insurance can be costly — but not as expensive as the residential and home care it pays for. Premiums vary with the buyer’s age and the level of benefit purchased. It is generally customary for premiums to be guaranteed for the first five years, but they can rise afterward.

The type of policy also affects premiums. The least expensive kind reimburses policyholders for long-term care expenses up to a designated limit. Another type pays the full benefit, regardless of actual expenses incurred. The most expensive policies allow claimants to use benefit dollars however they wish. Optional features, such as an annual inflation adjustment that increases benefits ever year, also raise the cost. For example, Manulife Financial policyholders select a total amount of coverage ($25,000 to $2 million) and a percentage of that amount to be paid monthly when long-term care is needed (0.25% to 2%). A $250,000 policy at 1%, with an inflation-protection rider, costs a 60-year-old single woman $4,372 annually; the same policy costs a 60-year-old man $3,142. Women pay more than men because they live longer and could receive benefits for a longer period of time. Long-Term Care Insurance in Canada, 2006 Dollar figures expressed in millions

Type of Policy Individual Group Total

No. covered 60,400 126,600 186,000

Premiums $56.4 2.6 59.0

SOURCE: Canadian Life and Health Insurance Association

Benefit payments $8.9 1.6 10.5

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Health

May/June 2008 • Employee Benefit News Canada

Square pegs, round hole How flexible benefits can facilitate benefit harmonization

BY RIZA SYCHANGCO

ow do you fit several square pegs into a round hole? This is the critical question a global commercial real estate services firm with more than 29,000 employees faced as it integrated more than 800 new Canadian employees with several very different benefit plans. “From November 2004 to January 2007, we were in growth mode — bringing together three groups of approximately 300 new employees each under the CBRE umbrella,” says Cinzia Booth, VP, CB Richard Ellis, in Canada. “As much as it was an exciting time ... the differences between the companies’ cultures, corporate strategies and HR approaches had to complement one another.” Creating a unified corporate culture and helping newcomers to adapt and flourish was just the first in a series of challenges that CBRE managed over a two-and-a-half-year period. Beyond physically accommodating the new hires during a period of rapid change, disparities between the benefits program for legacy and newly acquired employees were quickly identified as a priority to retain and enhance employee engagement.

Setting objectives With a highly diverse workforce, total benefits costs increasing by more than 10% annually and high administrative costs associated with managing

The net result — over 90% of emThree levels of dental and extended ployees enroled. medical coverage are offered and paid The distribution of options selected for through various combinations of reflect the different requirements of flex credits and payroll deductions. employees, and the ability of the new In response to employee feedback, program to accommodate them. dental coverage from basic to major Best of all, “Having almost half of and orthodontic procedures is offered our employees choose the gold option, at all levels. and the remaining 50% split between Similarly, for extended health care silver, and platinum, show how our options, there is no cap on out-ofnew plan meets the diverpocket expenses in the silsified needs of our new ver plan, but in the gold workforce,” says Booth. and platinum programs The immediate savings these expenses are capped were $64,000 to the $2.7 to protect employees who million pre-flex costs may incur catastrophic (about a 25% positive medical expenses. swing from prior year reTo ensure continuity benewals), plus any health tween pre-existing plans, a spending account forfeiselect group of additional tures (industry average optional coverage has been of 20%). made accessible to all, inCinzia Booth A disparity in the bencluding offering, for the efits spend between mafirst time, critical-illness jor groups was cut in half, coverage for employees and and in future years it is expected that their eligible dependents. three small plans, CBRE’s goal was to this gap will be further narrowed. And finally, the ultimate flexibility redesign and harmonize the benefit CBRE also projects that by moving is offered through the transfer of unplans to better meet the needs of all to a defined contribution approach inused flex credits into a health spendemployees, streamline program adstead of automatically absorbing annuing account, which opens up the ministration and achieve both equity al double-digit health inflation, there chance for CBRE employees to be reand cost sustainability. will be significant longer-term savings. imbursed for expenses they would Employee survey results confirmed have never imagined before, “includan overwhelming majority wanted ing delisted provincial services like eye Future opportunities coverage choice (93%), and 70% were exams,” says Booth. willing to pay for health and dental CBRE is thrilled with how smoothly plan enhancements. plan development and implementaAn interactive decision-making tool Key success factors tion has proceeded, but Booth can aldeveloped by Aon Consulting facilitatready see future opportunities. “The CBRE, Aon and selected provider ed executive discussions about possiutilization rate in the EAP program has Sun Life delivered on a very tight ble plan designs. only been 5% to date, so there may be timetable. Using relevant demographic proroom for further education.” Beginning April 2, 2007, employees files (i.e,. a “sample” employee might Another surprise was the strong inhad a two-week window to enrol, with be a single male nonsmoker, aged 40 terest in critical-illness insurance, as their new coverage beginning two to 44), the tool allowed opposed to more traditional optional weeks later. Final claims immediate comparison life coverage. could be submitted to the between various possible “Generally, there is a much greater old plan until the end of benefit options, showing awareness of the inherent value of critJune. Employees who did exactly what potential ical illness ... so much so that we had not make a selection were flex credits could and defaulted to the single, silver about a 40% take-up rate versus only could not purchase. 30% for optional life,” she explains. plan and locked in until July While fitting three “square pegs” into 31, 2008 (unless they experi“round holes” was initially a formidable ence a qualifying life event). Plan design task, Booth agrees that by partnering Twenty-eight bilingual Ultimately, the deciwith industry experts, CBRE now has a webcasts were held for three sion was made to go with benefits program with the strength and divisions to train employees a core-plus-options apRiza Sychangco on the new online enrolment flexibility to support a unified workproach. All employees tool and flexible program op- force, now and in the future. — E.B.N.C. now receive companytions. From an operational paid basic coverage, such Riza Sychangco is a VP at Aon perspective, the ability to model flexible as 24-hour EAP coverage, life insurConsulting Canada and can be reached benefits options proved to be a critical ance and accidental death and disat riza.sychangco@aon.ca. Aon provided success factor in communicating in a memberment. Disability coverage is consulting services to CB Richard Ellis in employee-paid through payroll deduc- simple and straightforward manner to the development and implementation of employees with different pre-existing tion in order that any benefits paid to their flexible benefits plan. plans. disabled employees are tax-free.

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Health

16 May/June 2008 • Employee Benefit News Canada

Limits (FROM PAGE 1)

just showing the fruits of our labour.”

“Have you ever been exhausted or sick and gone to work anyway?”

More training needed

Sadly, some respondents report confidentiality (23%), fear of being judged (21%, and fear of conseMore than half (65%) of responquences (12%) as reasons they dents (excluding the self-employed would not talk to their bosses and company owners) say senior about a mental health issue. management takes care of employ“Twenty or 30 years ago, you nevee wellness. This opinion is more er saw someone talk to their boss widely held among those who: about this. It was considered a flaw • Qualify their financial securiat the time,” Keay adds. “The NIMty as excellent (84%). BY [not in my backyard] syndrome • Consider themselves to be in hasn’t been totally obliterated, but excellent mental health (73%). we are much more open now.” • Have never had a co-worker The concept of presenteeism — leave for mental health reashowing up for work even when sons. The main reason for this feeling? employees should be at home recovering from illness — still looms Employees list access to attractive large: 42% of Canadian workers benefits packages (41%) and manwent to work sick or exhausted in agement that is ready to listen or 2007. open to discussion (39%). Their reasons? “One thing that is coming out • 61%: Looming deadlines. loud and clear is the generation of • 55%: Preventing workload workers entering the workforce pile-up. now are much more interested in • 49%: Not wanting colleagues benefit packages than higher to be overloaded. salaries,” Nowski says. “Benefit • 41%: Concern about missing packages, including wellness initiawork being frowned upon. tives, are kind of the movement of • 40%: Simply not being able to the future.” afford the income loss. Two-thirds of employees said Interestingly, when asked to name Michele Nowski, director of the top stressors in disability income claims and their lives, respondisability management at dents listed work Desjardins Financial Security pressures third, after says, “One thing that is coming money and personal out loud and clear is the health. This doesn’t generation of workers entering surprise Nowski. the workforce now are much “In reality, we see more interested in benefit just a small percentpackages than higher salaries.” age of mental health absences that are solely related to workplace issues,” she says. they would be comfortable talking “Obviously, stress management is to their bosses about a major menstill an everyday struggle for many tal health problem — a statistic people, but the main responsibility Nowski is thrilled to see. of the workplace is to provide “I think people are becoming health conditions to help workers more comfortable with the acceptface their daily challenges.” ance of mental health issues,” she Alain Thauvette, senior vicesays. “While some still think there is a stigma around mental health in president, group and business insurance for DFS, agrees. the workplace ... people are be“Even if each person is responsicoming more open, more comfortble for his or her own health, these able. results should prompt employers “I do think it’s a change. I do to take a closer look at the reality of think perceptions are changing.” their own workplaces and its imKeay says social marketing is pact on employees’ health,” he one of the main catalysts for that says. “In the long run, employers change. cannot be entirely sure of the “There are public health camstrength of their businesses if their paigns all the time talking about workplaces are not in good health.” AIDS, cancer, mental health [and] To view the entire survey, visit television commercials on all sorts www.healthiscool.ca. — C.M.F. of disabilities,” she says. “That’s

No 17%

Bosses understanding more

Yes 83%

“Over the past year, how many times did this situation occur?” More than 10 times 12%

6-10 times 11%

None 10%

1-2 times 38%

3-5 times 29%

Mean with “none”: 6.0 times Mean without “none”: 6.7 times

SOURCE: SOM

“In your current work environment, would you say that your company's (organization's) senior management takes care of the wellness of their employees?” No 35%

Yes 65%

“What makes you say that?” % Access to attractive benefits packages

Listen / open to discussion

Employee recognition program

Flexible schedule

Possibility of vacation / sick leave

Relaxed atmosphere / like a big family

Employee parties / events / social activities

Avoid work overload

Employee training

Competitive compensation

Onsite employee rest and relaxation areas

Healthy / balanced food options in the cafeteria (no junk food)

Equipment is safe / inspected

SOURCE: SOM

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18 May/June 2008 • Employee Benefit News Canada

Qualityof Life Absence makes the team uneasy Teleworkers may have strained relations with those at the office Teleworking means going the extra mile BY CARLY FOSTER

BY LYDELL C. BRIDGEFORD

workers, Golden found that those who don’t telecommute may find their work less fulfilling because of increased obstacles to establishing and he greater prevalence of teleworkers within a maintaining effective and rewarding relationships department or a division may have a negative with their teleworking colleagues. effect on job satisfaction among workers who Moreover, some nonteleworkers think they have don’t telecommute, says Timothy Golden, an associless flexibility and a higher workload when their colate professor at Rensselaer Polytechnic Institute in leagues are working at home. What’s more, they may New York. be frustrated by coordinating work in an environ“I wanted to try to better understand the broader ment with extensive teleworking, he explains. implications of telework that go beyond the teleGolden realizes, however, that other variables inworkers themselves,” says Golden, who has been fluence job satisfaction and employee retention studying flexible work modes and teleworkers for among nonteleworkers. For example, he notes the over a decade. He also points out that there’s not amount of time co-workers telework, the much research investigating the impact extent of face-to-face interactions and of telework on those who remain in the the amount of job autonomy given to office. employees are also influential factors. The company Golden studied had a Still, he advises managers to create telework program in which nearly 30% greater face-to-face contact between coof its workforce participated. The proworkers when employees are in the office gram was a voluntary initiative provided and allow greater job autonomy to acto nearly all employees as a means of complish work activities as employees improving quality of life and alleviating see fit. conflicts between work and family. Employers need “to take into account Managers were curious about how the the broader impact of telework on others program affected the rest of the compain the office, particularly within teamny’s workforce. Managers must create based work environments, and exercise In the study, all respondents had at greater face-to-face caution when implementing or expandleast a bachelor’s degree, 55% were fecontact between ing this work mode based purely on indimale, and the average age was 37. teleworkers and their vidual desires to telework,” Golden says. Drawing randomly from professionalin-office counterparts, Based on the research, employers may level workers across the company, the fisays Timothy Golden, be able to mitigate any adverse consenal sample represented the responses of an associate professor quences of teleworking in terms of the 42% of workers who did not telework, at Rensselaer satisfaction levels of those co-workers in but work with telecommuters. Polytechnic Institute. the office by enabling those in the office Analyzing the responses of these

Contrary to popular belief, employees don’t relish time away from their bosses. According to new survey results, nearly half (48%) of workers said their jobs would be more difficult if they did not work in the same office as their supervisors. Of this group, 27% felt it would be much more difficult. Similarly, 58% of managers surveyed said it is important that all staff members work in the same location. “Technological advances and global expansion have made it more common and acceptable for people to work remotely,” says Dave Willmer, executive director of OfficeTeam. In some instances, it’s hard to avoid, he adds. “Those who work outside the office must go the extra mile to make sure they keep the lines of communication open.” Willmer gives the following tips to help professionals who work remotely stay connected: • Provide frequent status reports. Establish a schedule for giving updates to your supervisor so he or she is aware of your workload. • At a minimum, offer a weekly status report detailing tasks completed and in-progress. • Pick up the phone. While e-mail is an effective communication method, using the telephone can sometimes be more efficient and help strengthen ties with your manager and co-workers. • Highlight your accomplishments. When you don’t see your supervisor regularly, tooting your own horn becomes even more important to get proper credit for your achievements. • Meet face to face. Take advantage of all opportunities to meet in person with your manager and colleagues. These discussions are imperative to stay connected, avoid miscommunication and ensure you stay top-of-mind for desirable projects and promotions.

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Quality of Life

to have more job autonomy or discretion in completing job tasks. In addition, organizations should determine if turnover among nonteleworkers has increased since implementing a telework program. Survey nonteleworkers to find out what they really think about the program and those who telecommute, says Golden. “Any informed manager needs to consider the full range of impacts that any decisions or change in work modes might have.”

The proper hook up It’s key that employers leverage advance communication technology so that nonteleworkers and teleworkers can properly connect, says William

Facebook (FROM PAGE 1)

Traditional recruitment fails And don’t even try the traditional method of recruitment — using mission statements, quarter-page newspaper ads and what Maffin views as insincere marketing — because that just isn’t going to work on this techsavvy age group. “Your company will collapse,” he said bluntly in an interview after the presentation, when asked what would happen if organizations continued their standard recruitment measures. “There are very few things that are absolutely guaranteed to take a company down. Your No. 1 asset is human talent.” The one overriding work ethic that has emerged the past few years — the one nugget Maffin urged everyone to remember above all else — is, “These people want to change the world. “They want their time working for an employer to mean more than just helping ‘The Man’ pay his mortgage,” he said. “They want to be part of an organization that is aligned with their personal values.” Maffin pointed to a recent survey of 4,700 Canadians who were asked: “What is the most important thing to you in your job?” More than 50% said fulfilling work — more than money and job security combined. “This wasn’t about selling products,” he said of the famous Apple ‘Think Different’ campaign of the late 90s — which featured influential

May/June 2008 • Employee Benefit News Canada

the fixed office, depends on the advance communication technology the employer utilizes,” he says. If the technology is there to sustain office communication, it doesn’t matter whether workers commute to an office or they are remote. If you don’t have socialization, the physical separation is harming, Mularie contends. “When you start a teleworking program, clearly the teleworkers must be trained, but also their in-office counterparts have to be trained as well, in terms of what it actually means to telework,” says Cindy Auten, general manager of Telework Exchange. The

Before starting a telework program, teleworkers and in-office workers must be trained about what it actually means to telework, says Cindy Auten, general manager of Telework Exchange.

Mularie, chief executive office of the Telework Consortium, a Virginia-based group advising private and pubic sector employers on telework programs. “To me, the quality of the teamwork and the interaction among the work groups, whether they’re remote or in

people who were crazy enough to think they could change the world — that he used as a metaphor for the age group. “It’s about selling a spirit. That is how you recruit the Facebook Generation.”

Social media defines them They have become known as the Facebook Generation for a reason: The social media site aimed at that age group (and younger) sees 18 million people returning to it every day. In Vancouver, 20% of adults who have internet access at home visit www.Facebook.com daily. In Toronto: 19%; Montreal: 24%. “Is it any wonder why advertising is abandoning traditional ways of reaching these people?” Maffin asked, flashing a PricewaterhouseCoopers survey that showed online advertising will more than double over radio by 2011. Yet a preconference survey by EBNC of attendees showed only 3% are using blogs, wikis and other social media to recruit, although 74% said they are using online advertising. Ernst & Young, one of Canada’s leading accounting and tax firms, needs to recruit 11,000 interns each year and recently started turning to Facebook, Maffin said. In the first six weeks after setting up a group on the site, they had

“It’s about selling a spirit. That is how you recruit the Facebook Generation,” broadcaster, blogger and social media strategist Tod Maffin told a rapt crowd at EBNC’s recent Canadian Benefits Summit.

Virginia-based group works with public and private firms on telecommuting policies. “There are many misperceptions out there from people who have not been exposed to telework before,” Auten explains. “From an employer perspective, you need to test the teleworking program, setting up performance metrics showing what it is actually doing for the company and how it is affecting employees.” “The whole idea is to keep the lines of communication open,” she says. This includes letting the colleagues of teleworkers express not only how well the teleworkers are performing, but also their opinions about the program. —L.C.B.

You know how to get them. How do you keep them? • Replace mission statements with mantras, such as Google’s“Don’t be evil.” • Help set personal career plans with long-term goals beyond employment with your organization. • Show how you can help employees get there through mentoring and training. • Annual reviews should focus on the future, not past mistakes. • 360-review: Let workplace peers give feedback on performance

7,000 members. Their first video wasn’t about how to get hired or the company’s mission statement — it was on corporate social responsibility. Other successful Facebook tools include creating events such as job fairs, polls, demographically-targeted ads that can specify everything from competing employers to income to education, and workplace fan pages. “Give employees the tools to spread the news,” Maffin urged. “Send an email out in real-people language, and encourage them to use Facebook. Send links to YouTube videos.” And because sites such as Facebook have an incredible word-of-mouth, instant-messaging-type system — once someone says they have joined Company X’s page, or attending Company Y’s career fair, it gets sent out to all their friends — you end up targeting layer upon layer of people. Excellent marketing, when you consider that good people travel in packs, he notes. “If you do nothing else, start a blog,” says Maffin. Get the company president or someone high-profile to talk about what your organization is all

about. “It’s much more effective than an ‘About Us’ page on a Web site.”

Turning words into action Larry Ketchebaw, the pension and benefits manager at Unisource Canada, said Maffin’s presentation “opened my mind to all the new methods and ways that we must incorporate into our everyday work lives to attract and retain this group of employees that will fill the void left by the likes of me as a baby boomer.” He said he left the conference and “rushed back to the office” to speak with the company’s head of human resources to go over www.craigslist.org as a free advertising tool, and Facebook as a survey tool. Unisource is also going to set up a Facebook company page. “I’ve done a bit of research in the last few years on this group, and [Maffin] is bang on,” Ketchebaw said. “These people are motivated in a totally different way from what my generation was. If you don’t make them feel that they have meaningful work to do, they will be looking for it elsewhere.” — C.M.F.

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Global Watch Benchmarking the best of breed Blended public/private OECD health care systems promote innovation ment, you are not limited to a government-run hospital,” he explains. Where private health care providers have built facilities in Europe, Khemani reports there has actually been a reduction in wait times because there ends up being a faster growth in capability than the government alone can provide. A shortage of health care professionals is identified as a key reason for bottlenecks in the Canadian health care system, and both Carlyle and Khemani acknowledge that, in the short term, there is a risk that a parallel private system could exacerbate the problem. However, Khemani says allowing doctors to work in both systems is not necessarily a diversion of resources because they frequently cannot work to capacity in the public system alone. “Surgeons may only get one or two days of operating-room time a week, so permitting private hospitals would allow them to do many more procedures.”

Managing employer costs BY SHERYL SMOLKIN

oth Canada and the U.S. can learn from the experience of Australia, the U.K. and continental Europe, where blended public/private health care systems effectively deliver universal health care coverage, according to research for a new book recently released by Aon Consulting. The genesis of “Global Health Care Systems: A perspective on issues, practices and trends among OECD nations” co-authored by Ashim Khemani, CEO, and Robert Carlyle, VP, of Aon Consulting Canada, was a project the company conducted for Alberta Health and Wellness. Citing 2005 OECD figures, the authors note that annual public and private health care expenditures as a percentage of GDP ranged from 8.1% in the U.K. to 15.2% in the U.S. Comparable expenses in Canada were 9.8%. Canada is “in the middle of the OECD pack” in terms of spending, but, Carlyle says, “Canada has a relatively healthy population, so we are spending a fair bit on an age-adjusted basis in this country and really not performing well in terms of the amount of money spent versus outcomes.”

Promoting innovation “Operational efficiency is high in the U.S. because there are so many specialists that are so good at focused and narrow procedures,” he says. “However, administrative costs are also very high due to multiple providers, and there is considerable waste due to

‘defensive medicine,’ where many unnecessary treatments or diagnostics are given to limit legal liability. And, of course, a significant number of Americans have insufficient basic coverage for necessary medical care.” Noting that the “ring fence” around anything covered by the Canada Health Act that does not permit private delivery of “necessary services” really inhibits innovation in this country, Carlyle suggests that the blending of complementary public and private systems in other OECD countries facilitates adaptability when new techniques or capabilities come on stream. For example, in Switzerland and the Netherlands, everyone has to buy their own health insurance ,but the government essentially makes sure every individual has enough money to buy that coverage. “So you see, there are different ways the public sector can be involved to ensure there is universal health care, but unlike in Canada, if you need a hip replace-

Robert Carlyle, VP of Aon Consulting Canada, says given that across the OECD only about 3% of health care spending is on prevention and wellness initiatives, there is a huge amount of room for improvement in that area.

Finding solutions to the health care crisis is of particular concern to the private sector in Canada and the U.S because they pay a significant part of the health care bill (Canada: 2.9% of GDP; U.S.: 8.4% of GDP). Controlling health care costs is clearly a critical issue for U.S. employers, where the annual expense is so dominant that it may be higher than that of the products the company actually produces. Carlyle notes that in Canada, because the really high health inflation relates to drug costs, the biggest issue for benefit plan sponsors in this country is the lack of integration between public and private pharmaceutical spending. He says, “As governments increase things like their catastrophic drug coverage or put in exemptions or different ways they are managing their costs we’re really seeing that it is difficult for long-term planning and cost control in the private sector.” Given, that across the OECD, only about 3% of health care spending is on prevention and wellness

Ashim Khemani, Aon Canada CEO, says allowing doctors to work in both systems is not necessarily a diversion of resources because they frequently cannot work to capacity in the private system alone.

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May/June 2008 • Employee Benefit News Canada

Australia

Canada

Germany

United States

Since 1996, Australians have been encouraged to obtain private health insurance. A 1.5% income tax surcharge is increased to 2.5% for higher-income households that do not have PHI. Furthermore, there is a 30% rebate on PHI premiums, intended to reflect the reduction in cost to the public system. This approach has been persuasive, and about 43% of the population now has PHI coverage, which gives them a greater level of choice in selecting health care providers than they would otherwise have in a one-payer system. Wait times for elective surgery are often shorter for those with PHI. The expansion of PHI has improved patient choice in urban areas, but has been less effective in rural and remote regions. Although direct public spending has been reduced, the cost of the PHI premium rebate has resulted in little change to overall growth in health care spending. In addition, average wait-times remain relatively long compared to other developed countries.

The Canadian health care system is somewhat different than others in developed countries as the public and private sectors are highly separated. This unique situation is a result of the Canada Health Act, which effectively drives the funding and delivery of all ‘medically necessary’ health services into the public sector. Hospital spending and doctor remuneration are the two biggest expense categories. Overall, the public sector accounts for 70% of total health care spending. This is complemented by a private sector that funds and delivers about half of the prescription drugs and a wide range of supplemental health services. The private sector expenditure is evenly split between out-of-pocket spending and privately insured services. Long waiting times for certain services and expansion of private health care are two of the most pressing current issues.

Established in 1883, Germany has the world’s oldest universal health care system. Through a combination of mandatory and voluntary enrolment, 87% of the population is covered by the statutory health insurance plan. Premiums are paid by employees and employers, with government subsidizing those with low incomes. As health insurance is mandatory, the remainder of the population must obtain private insurance. When doing so, it is typical to purchase a higher level of benefits. Most health care organizations are nonprofit, staffed with salaried doctors and other health care providers. Thus, governments do not directly manage either the funding or delivery of care, although they do exercise considerable control through legislation and regulation. In 1995 Germany introduced a social long-term care insurance scheme using income-based contributions. Expenses have exceeded revenue in recent years, and with an aging population and increased future costs, significant reform is necessary.

Unlike most OECD countries, there is no public guarantee of health care funding in the United States. When compared to most other health care systems, there is a wider range of independent health care providers and a more complex combination of public and private funding and insurance options. The robust private health care industry has attracted considerable investment and innovation, resulting in some of the best health care in the world. However, about 15% of the population has no health care insurance, and their effective access to care is quite limited. Apart from the equity issues raised from un- or under-insured citizens, one of the biggest issues is about overall value for dollars spent on health care. Outcomes are relatively poor compared to other developed nations, although 15.3% of the GDP is spent on health care.

initiatives, Carlyle see a huge amount of room for improvement in that area. “The impression I’m left with is probably that more of our health care costs are created by lack of prevention than is actually addressed through the traditional delivery of care,” he says.

Seeds of convergence And in spite of the fact the real differences between health care solutions in Canada and the U.S. are based on fundamental differences in philosophy, Carlyle thinks we are actually seeing some convergence. “You can see it in the U.S. with election promises and universal health care in Massachusetts. In contrast, we are seeing more and more people have to take responsibility for their health in Canada,” he says. “So I do see them coming together, but I don’t want to underestimate the challenges. Maybe in a few hundred years, but I do see us trending toward one another.” — S.S. “Global Health Care Systems: A perspective on issues, practices and trends among OECD nations” is $85, and can be purchased by sending an e-mail to marilynne.madigan@aon.ca.

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Cover Story

D ancing private health care around

Castonguay report will have little impact, experts say

[FROM PAGE 1] Compensation Board, which pays for private health insurance and care for its members, says $60-$80 million in wage-loss benefits are saved each year. But three years after the landmark Chaoulli case was predicted to open the floodgates of private health care and insurance in Canada, experts argue little has changed.

ILLUSTRATION BY CECIL G. RICE

The impact of Chaoulli Dr. Jacques Chaoulli went to court in Quebec on behalf of a patient who was suffering debilitating pain while on a waiting list for a hip replacement. The Supreme Court of Canada in 2005 ruled in favour of the doctor, saying the Quebec Health Insurance Act and the Hospital Insurance Act, prohibiting private medical insurance, violated the Quebec Charter of Rights and Freedoms. The controversial decision sparked huge debate around the role of private health care, a two-tiered medical system and the rich getting quicker coverage than the poor. Because the ruling cited only Quebeckers’ rights to life and security of person, the ruling is only binding in that province — although three of seven judges also said the laws violated Canada’s Charter of Rights and Freedoms. “Since Chaoulli, unfortunately or fortunately, depending on which side you’re on, not much has happened,” says Michèle Boisvert, Watson Wyatt’s group and health practice leader for Eastern Canada. “That’s a safe conclusion. It did not have the impact many expected it would.”

(SEE PRIVATE ON PAGE 24)

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24 May/June 2008 • Employee Benefit News Canada

Private (FROM PAGE 25) “From a plan sponsor point of view, from an insurance point of view, it did not result in any major changes,” she adds. “It’s pretty much been a nonissue.” Since the Quebec government’s response to the decision only allows private insurance for three specific procedures — knee, hip and cataract surgery — and only if a patient has been waiting for nine months, it hasn’t had near the impact people thought it would. “It’s not a large offering,” says Alain Robillard, a principal with Mercer in Montreal. “These three [procedures] are targeted to older populations, not necessarily the active workforce. I’m not saying older workers are not productive, but those are not the top 3 conditions the usual workforce would have. “I have not seen any requests from clients for [coverage],” he says. “And no insurers have come out with that product.” Boisvert agrees, saying the 100 or so doctors working outside Quebec’s public health system are based in Montreal, so there is no real access to private care outside of the major metropolis. “If you have no access to private care, you aren’t going to buy insurance for it,” she says. “The government still controls the supply [of health care].”

He says, she says But those working in the private health care arena say some Canadians are seeking and getting private health care, and insurance companies are picking up the tab — and they have the patients to prove it.

“We work with insurance companies [and employers] right across Canada,” says Richard Baker, founder of Timely Medical Services and North American Surgery. “Organizations ... are only too happy to oblige.” Headquartered in British Columbia, for-profit Timely Medical facilitates private surgeries for people across Canada, and Baker says his client list stretches from Newfoundland to Ontario to Alberta and Vancouver. The company “negotiates great prices” on procedures such as arthroscopic knee surgery, prolapsed bladders, tonsil removal and carpel tunnel syndrome. North American Surgery offers lowcost procedures to uninsured and underinsured Americans, as well as companies who are self-insuring their employees. It’s often significantly cheaper for a company to pay $4,000 for an employee to get quick knee surgery and get back on the job, then have them sit at home for months or years on a waiting list and long-term disability, Baker says. “Yes, you can wait and do it ‘the official way,’” he says. “But it’s cheaper and quicker to bite the bullet. [Working with employers] is not a huge part of our business, but it’s a growing part.” Not only are Day’s patients coming from British Columbia — a province similar to Quebec in its political acceptance of private health care — he operates on three or four Albertans a week and has clients from across Canada. He says many Canadians are flocking to the U.S., too, where “it’s like going to a foreign country.” “If you are on wage-loss benefits for more than six months, or on disability or worker’s compensation, the chances of you coming back to work full-time are slim,” Day says. “Not only are there short-term costs, but long-term and mental health.”

Quebec private health care timeline June, 2005: The Supreme Court of Canada in 2005 ruled in favour of Dr. Jacques Chaoulli saying the Quebec Health Insurance Act and the Hospital Insurance Act prohibiting private medical insurance violated the Quebec Charter of Rights and Freedoms. Because the ruling cited only Quebeckers’ rights to life and security of person, it is only binding in that province — although three of seven judges also said the laws violate Canada’s Charter of Rights and Freedoms. February, 2006: The Quebec government responds to the Chaoulli ruling with “Guaranteeing Access: A challenge of equity, efficiency and quality.” The consultation document introduces standardized wait-times for hip, knee and cataract surgery, and allows private insurance only for these procedures. It also allows private clinics to operate under contract with the public sector to perform these surgeries and alleviate wait times. February, 2008: The Castonguay report on health is released. The report calls for a greater private-sector role in Quebec. Recommendations include implementing a health care user fee, allowing physicians to practice both publicly and privately, a greater role for private health insurance to cover publicly-paid procedures, and opening up hospital management to private companies. Media reports suggest the Quebec government may shelve the report because of the controversial nature of the recommendations. SOURCE: Toronto Star, CBC, Watson Wyatt

Industry has different story Nevertheless, an interview with a representative from Desjardins Financial Security paints a much different picture of the insurance/private health care relationship. Under the Canada Health Act, insurance companies are not allowed to pay for procedures covered by government health plans, says Sarah Twomey, Desjardin’s external communications and media relations advisor. However, Desjardins — and many

other insurance companies, according to Boisvert and Robillard — are processing claims from private disability management companies that specialize in getting employees quicker consultations with specialists or MRI scans. Once a person gets on LTD, employers are much more willing to spend money for speedier access to get workers back to the office. “This is not done often compared to two or three years ago, as wait-times have improved. “We determine this on a case-by-case basis and wait-times are

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Cover Story different in each province. According to our underwriting department, we have seen very few requests for this type coverage from employers,” Twomey says. “Employers are greatly concerned about the cost of current coverage and therefore are not at this time asking for a lot of upgrades that require an increase in premium dollars. If the provincial medical plans do a lot more delisting of services than we expect, employers will be forced to look for solutions for their employees,” she continues. That is very true, says Pierre Saddik, president of Saddik International Consulting, who also worked with Dr. Chaoulli. “Clearly, nothing has yet changed for employers, although the increase in health plan costs forces employers to find new tools to have a better bang for their buck,” he says. “This may translate into a greater emphasis on prevention before a medical condition takes place, and health productivity management in the form of quicker access to care, and wait-list insurance like that offered by Acure Health.” Because some principles of the Chaoulli case do apply to the entire country, Day says insurance companies could offer private health insurance for all medically-necessary services, if they wished to. But “businesswise and politically,” companies might not want to take the risk.

The future The Quebec government recently released the Castonguay report on health, a follow-up look at Quebec’s health care system promised after the Chaoulli ruling. It recommended a greater private health care sector role in Quebec, including a health care user-fee and allowing private insurance to cover more publicly funded procedures. Media reports suggest the Quebec government may shelve the report because of its controversial recommendations regarding the extension of private health care and increased taxes and user fees. Both Day and Baker point to current cases before the courts — two in Ontario and one in Alberta — that they say will give people to greater freedom to pay for private surgery and procedures in Canada. In fact, the case of Lindsay

May/June 2008 • Employee Benefit News Canada McCreith — who says he was forced to travel to Buffalo and pay for treatment of a brain tumour — has been dubbed “the Ontario Chaoulli.” Baker says if he is successful, “it will be the

end of the Canada Health Act as we know it.” “We cannot continue to offer everything to everyone in unlimited amounts for free — that’s an unachievable goal.

Both the residents and governments of Canada need to change the public system of funding hospitals and proactively decide what they want in and out of the public basket,”

says Day. “That’s not a private-public issue. What is sustainable is a good system, available to everyone, regardless of the restraints of the pocketbook.” — C.M.F.

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Feature Story

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BY SHERYL SMOLKIN

ontaining costs, managing risk and volatility, workforce planning and how to effectively communicate the value proposition to employees — these are the top issues Canadian benefit plan sponsors are wrestling with today, say leaders of eight top consulting firms who recently participated in a “virtual roundtable” with EBNC. Senior leaders from Aon, Buck, Eckler, Hewitt, Mercer, Morneau Sobeco, Towers Perrin and Watson Wyatt candidly responded to a series of questions posed by EBNC about client expectations in a global economy, and how their services and products are changing to meet these challenges. In the discussion below, we share some of their keen insight.

What are clients looking for in a consultant today? “Today more than ever before clients are looking for truly unique

ideas on how to implement consulting solutions,” says Aon Canada Senior VP Marilynne Madigan. “We’re helping address more issues that now fall into the ‘need to do’ rather than the ‘nice to do category,’” says Hewitt Consulting Managing Principal Sarah Beech. “Many of these issues relate to labour shortages such as driving employee engagement and developing flexible benefit plans, that appeal to a diverse employee population. However, clients do not want solutions offered in isolation, points out Mercer Canada President Jacques Théorêt. He says solutions need to be well-informed and part of the big picture. “They’re asking for deep knowledge of both their business and their industry,” agrees Kevin Aselstine, Towers Perrin Toronto’s managing principal. And with an increased emphasis on due diligence and governance, Eckler Ltd. Principal Todd McLean says, “Clients and prospective

(SEE COST CONTROL ON PAGE 28)

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Feature Story

28 May/June 2008 • Employee Benefit News Canada

Cost control

*Top three issues facing Canadian benefit plan sponsors Aon:

Buck:

Hewitt:

Mercer:

Morneau Sobeco: Towers Perrin: Watson Wyatt:

Marilynne Madigan, SVP

Cameron McNeill, Todd McLean, CEO Principal

Sarah Beech, Managing Principal

Jacques Théorêt President (Canada)

Fred Vettese, Exec. VP, Chief Actuary

Shift of responsibility for key benefit program decisions from employer to employee

**Cost vs. value proposition

Benefit plans meeting employee needs, by incorporating the right degree of flexibility

**Optimizing human capital and minimizing risks

**Cost containment **Cost

Merits of **Volatility of **Managing outsourcing, use pension funding benefit plan of innovative and expense costs technology to manage risk, cost

**Cost **Effective control and employee predictability communications

**Risk Regulatory burden on pensions

**Workforce planning issues

**Need for more frequent, relevant communications

**Impact of accounting costs on business

**Attraction and retention

**Employee value + impact of programs on workforce behaviour

**Cost control and absolute level of cost

Providing technical knowledge, advice and planning tools

(FROM PAGE 28) clients are interested in knowing not only what technical services we offer, but also who we [really] are and how we do things.”

How has the increasingly global nature of many organizations impacted client expectations? To serve a multinational clientele, Madigan says clients expect their advisers to have a global footprint, and, at the same time, to have local, onthe-ground-knowledge. But Morneau Sobeco Executive Vice President and Chief Actuary Fred Vettese cautions that when global companies try to globalize elements of their retirement and benefits programs, “it’s something like putting a square peg into a round hole. The legislative and tax environment surrounding each plan differs markedly from country to country and can frustrate a company’s best attempts at trying to achieve some homogeneity.” In a recent request for proposal, Watson Wyatt Retirement Leader David Burke was not surprised that bidding consulting firms were asked: “To what extent can you work with us in a seamless global fashion?” However, he says the more novel query was: “Are you using lower cost locations and service centres in other parts of the world to keep costs down?” Cameron McNeill, CEO of Buck

“Today more than ever before clients are looking for truly unique ideas on how to implement consulting solutions,” says Aon Canada senior VP Marilynne Madigan.

DB vs. DC approach to pensions, benefits

**Management of benefits costs and the accounting impact of post-retirement obligations

Consultants, sees this question as a sign of the times. “Clients expect their consultants to be able to outsource to a number of countries that, a few short years ago, we wouldn’t even have contemplated.” “Our clients are also asking us to help them recruit abroad, even where they may not have operations,” says Aselstine. “So we have developed processes and built tools that make it easier for them to do things like workforce planning and analyze the cost/benefits of different staffing alternatives.”

Marilynne Madigan

**Enhancing employee understanding and appreciation of benefit programs

**Aging workforce issues, good governance and total outsourcing

How have your business strategies or service offerings evolved to meet these expectations? All of the firms interviewed recognize the importance of meeting the increasingly global requirements of many of their clients. “Perhaps the biggest single change here is the expansion of offshore capabilities and an increased investment in technology and tools,” says McNeill. “Global HR issues, technological solutions and programs are now on the immediate horizon.” “Mercer has always made signifi-

David Burke Canadian Retirement Practice Director **Controlling volatility

Jacques Théorêt

Todd McLean

Kevin Aselstine David Burke, Watson Wyatt’s Canadian retirement practice director identifies attraction and retention as critical in tight labour markets, but he says, “This applies to key staff, not all staff.”

“The pendulum has swung all the way from the employer taking on all the risk to employees absorbing most of it,” says Fred Vettese, Morneau Sobeco’s executive VP and chief actuary. Sarah Beech

cant investments in developing robust solutions for clients, many of them reflecting the particular need of a market but, more and more, with global applications,” says Théorêt. “Also, over the past years we’ve increased our investment in tools and infrastructure to create the seamless network of support for global clients and for clients around the globe.” Beech says a stronger emphasis on internal communication and education for Hewitt consultants has made them more aware of cross-border opportunities, “people issues” around the

“[Clients] are asking for deep knowledge of both their business and their industry,” agrees Kevin Aselstine, Towers Perrin Toronto’s managing principal.

According to Mercer Canada President Jacques Théorêt, organizations are focusing more on: cost predictability and containment; total rewards; the ROI of HR programs, and more leveraged compensation.”

Sarah Beech, managing principal, consulting at Hewitt says a stronger emphasis on internal communication and education for Hewitt consultants has made them more aware of crossborder opportunities.

Cameron McNeill

**Providing meaningful, competitive programs with manageable cost and risk

Kevin Aselstine, Managing Principal (Toronto)

*The views expressed are those of the consulting leaders named above, and not necessarily those of the whole organization. ** Colours denote common themes: cost control; minimizing risk, volatility; effective communications; workforce planning. SOURCE: EBNC 2008

Todd McLean, a principal with Eckler Ltd. reports the company has facilitated a number of employee secondments within their global network of business partners to raise awareness of international issues.

“Clients expect their consultants to be able to outsource to a number of countries that, a few short years ago, we wouldn’t even have contemplated,” says Cameron McNeill, CEO of Buck Consulting.

Eckler:

Fred Vettese

David Burke

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Feature Story globe and legislative differences from one country to the next. In addition to sharing clients and resources, McLean reports Eckler has facilitated a number of employee secondments within their global network of business partners to raise awareness of international issues.

Based on your relationships with clients, please identify the top three issues facing benefit plan sponsors in Canada today. As revealed by the chart on page 28, cost control is on almost everyone’s list. “To borrow from the world of property, the three most important factors are costs, costs and costs,” says McNeill. “There is rarely an opportunity or relationship we have with clients where they are not concerned with managing costs or controlling volatility in some way, but I’d have to say probably controlling volatility is No. 1,” comments Burke. And while he also identifies attraction and retention as critical in tight labour markets, “this applies to key staff, not all staff.” “Cost and risk do matter,” says Aselstine. But he maintains that employers need to focus on how these programs impact the business. “If you take a short-term view to cutting health plan costs, for example, what is the long-term effect on your population and your cost structure? If you switch from one plan design to another to mitigate risk — what are the consequences, unintended or otherwise, of that change?”

How are pension/benefits/ rewards packages changing to meet these challenges? Given that managing cost and risk are universal concerns, it’s not surprising that many employers have embraced a defined contribution approach to both pension and benefits plans. “The pendulum has swung all the way from the employer taking on all the risk to employees absorbing most of it,” says Vettese. “Time will tell if that pendulum swings back, at least a little. Another change is that more employers are communicating total rewards rather than

May/June 2008 • Employee Benefit News Canada

communicating pensions and benefits separately.” Théorêt agrees the human capital strategy of employers is definitely evolving to mitigate

risks and better reflect the business strategies of their organizations. He says, “Organizations are focusing more intently on cost pre-

dictability and containment, total rewards, the ROI of HR programs, and more leveraged compensation.” Furthermore, as pension and

benefits decisions are shifted from employers to employees, Beech and Madigan say it’s all

(SEE COST CONTROL ON PAGE 32)

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32 May/June 2008 • Employee Benefit News Canada

Cost control

making significant inroads in Canada,” says McLean. Aselstine says, “There’s a lot we can learn from the U.S. — and vice versa.” In particular, he highlights broader approaches to risk management and more advanced thinking about employee consumerism for retirement and health programs. But Vettese thinks Canadian plan sponsors should keep a close eye on court cases, currently pending in the U.S., relating to disclosure requirements and alleged excessive fees in DC plans, as well as where there may be indirect remuneration for steering business to a particular insurer. While Burke recognizes the merits of certain U.S. developments, he points out there are very fundamental philosophical differences in the two countries. “Be careful what you wish for,” he says. “If you wish for too much private health care, we may go down the wrong path. Trends around freezing DB plans have also been much stronger in the U.S. We need to think things through and avoid knee-jerk reactions.” — S.S.

(FROM PAGE 29) about how to provide frequent, relevant communications, including technical knowledge and planning tools. “We’re also seeing more employee communications targeted to different groups. For instance, the message delivered to younger employees about the need to start saving for retirement early is often quite different from communication directed to older employees about the same retirement savings plan,” says Beech.

What can we learn from the U.S. experience in terms of both retirement savings and health care? All participating consulting leaders see both positive and negative elements Canadian benefit plan sponsors can draw from the U.S. experience. “In DC retirement programs, for example, automated features, such as auto-enrolment, minimum contributions and target retirement date funds as investment solutions, have exploded in popularity in the U.S. and are

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