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NEWS & VIEWS
© 2012 Morneau Shepell Ltd. March 2012 | Volume 9, issue 3 | 1 of 7
IN THIS ISSUE MaNdaTory STaNdardS for CUSToMEr SErvICE: Accessibility for ontAriAns with DisAbilities Act (aoda)
Effective January 1, 2012, any private-sector organization in Ontario that provides goods or services and with 20 or more employees will need to comply with The Accessibility for Ontarians with Disabilities Act, 2005 (AODA) (the “Act”). This requirement will affect over 95% of Ontario businesses.
It is estimated that one in seven people in Ontario has a disability. Over the next 20 years, that proportion will rise as the population ages. The AODA was passed in 2005, with the objective of removing barriers that limit individuals with disabilities from fully participating in society.
Compliance is mandatory. The AODA allows the deputy minister responsible for the Act to appoint inspectors and provides for substantial monetary penalties in instances of failure to comply with the standards set out in the Act’s regulations—directors and officers can be fined along with their organizations.
Customer service is the first area for which standards have been developed under the AODA, through Ontario Regulation 429/07, entitled “Accessibility Standards for Customer Service.” Employee training on compliance with the Regulation is a legal requirement.
In practical terms, compliance with the AODA means that organizations must take a number of actions, including:
zz Develop internal policies and procedures incorporating the standards.
zz Train all staff in the provision of accessible services to all customers or clients.
1 Mandatory Standards for Customer Service: Accessibility for Ontarians with Disabilities Act (AODA)
2 CPP Changes to Employer-Paid Benefit and ASO Plans
4 Market Indices
5 Tracking the Funded Status of Pension Plans
6 Impact on Pension Expense under International Accounting
7 About Us
© 2012 Morneau Shepell Ltd. March 2012 | Volume 9, issue 3 | 2 of 7
zz Communicate accessibility policies and procedures to the public in accessible formats, upon request.
zz Report to the Ministry of Community and Social Services on accessibility policies, plan and progress. (An electronic reporting tool is being developed—organizations can request to be notified when it is ready by clicking this hyperlink: http://www.mcss.gov.on.ca/en/mcss/programs/accessibility/questions/form/csForm.aspx)
We recommend a number of steps to achieve compliance with the AODA. Begin with a review of your existing policies, then develop new policies and procedures as needed. Once policies have been established, all employees will need to be trained on accessibility in customer service. This can be delivered through a convenient, self-paced online program that fulfills the requirements of Regulation 429/07, which provides:
zz An overview of the Accessibility for Ontarians with Disabilities Act.
zz Requirements for organizations to comply with the requirements of the customer service standards.
zz Information on how to provide service with dignity to your customers with disabilities.
Your Morneau Shepell consultant can put you in contact with our specialists knowledgeable in human rights, occupational health and workplace harassment legislation, to develop and implement a plan for your organization that complies with the AODA.
CPP CHaNgES To EMPloyEr-PaId BENEfIT aNd aSo PlaNS
Recent amendments to Canada Pension Plan (CPP) legislation affect employer-sponsored disability benefit programs handled on an administrative services only (ASO) basis. These changes, which are effective on January 1, 2012, according to the Canada Revenue Agency (CRA), have generated a flurry of
communications from insurers, payroll associations and other organizations. The operational impact of these changes is unclear since insurers and plan sponsors have had little time to respond. If affected, plan sponsors need to make certain decisions with respect to their disability programs.
WHaT HaPPENEd?
zz On December 15, 2011, Bill C-13, Keeping Canada’s Economy and Jobs Growing Act (the “Act”) received Royal Assent. Bill C-13 is omnibus legislation designed to implement a number of measures proposed in the 2011 Budget.
zz The most pertinent impact for group insurance programs is that employers who provide employer-funded wage loss replacement plans (WLRPs) on a self-insured basis must deduct CPP contributions from those benefits.
zz This legislative change is related to the reversal of an earlier CRA ruling regarding the Toronto Transit Commission/Revenue Canada case and a clarification of language surrounding pensionable earnings with respect to CPP.
zz The amendment makes the CPP Act consistent with the Employment Insurance Act as a result of the Federal Court of Appeal decision in 2003 requiring that EI premiums be paid on uninsured disability benefits.
zz This change applies to CPP and does not impact the Québec Pension Plan (QPP), as it is related only to the reversing of the TTC court decision with respect to CPP.
zz It has been recently clarified that employees receiving CPP disability benefits are exempt from this change. However, the requirements for EI deductions and remittances remain.
When does this come into effect?The ruling is retroactive to January 1, 2006. However, Revenue Canada has stated that it will not reassess contributions for the period between 2006 and January 1, 2012. It expects employers to implement these new requirements for withholding as of January 1, 2012. The Canadian Life and Health
© 2012 Morneau Shepell Ltd. March 2012 | Volume 9, issue 3 | 3 of 7
Insurance Association has raised this as a concern since their member organizations need time to respond.
WHaT doES THIS MEaN To PlaN SPoNSor?
PlaNS NoT affECTEd By THE NEW lEgISlaTIoN
zz Trusts or insured STD/LTD programs: Employers do not have to make CPP and EI deductions under an insurance policy or a trust that meets CRA guidelines. The term “insurance policy” would extend to experience-rated, refund arrangements. [Further developments have occurred; please see the update in the April News & Views.]
zz Salary continuance/sick bank arrangements: Employers offering these programs should already be making employee and employer contributions for CPP/QPP and EI premiums. Therefore, no changes are necessary.
zz Non-taxable ASO disability plans: Non-taxable plans continue to be exempted and therefore do not need to deduct CPP contributions (both employer and employee) from benefits provided under these plans.
PlaNS affECTEd By THE NEW lEgISlaTIoN
zz Taxable ASO plans (STD or LTD) or split plans (ASO and insured). This change affects the employer and covered employees. Several options are available:
zz Maintain the existing plan, in which case the employer and the claimant are required to make CPP and EI contributions on the benefit amount.
zz Change the underwriting on the plan. In some cases, a transition to an insured or experience-rated refund plan will make sense depending on the cost of payroll taxes relative to cost(s) associated with insurance.
zz Consider a non-taxable plan providing similar after-tax income.
Insurers have not traditionally calculated CPP or EI deductions nor provided such remittance from disability payments. Insurance companies are adjusting their processes as quickly as they can in response to the legislative changes:
zz Some carriers have advised they will not automatically start deducting CPP and must be directed by the client to do so.
zz Some insurers have noted they will support clients by preparing communications explaining these changes to employees on claims.
zz Systems and processes are being adjusted to accommodate this requirement, which may require a few months.
zz These changes may result in a range of other insurer services and/or reporting in the future.
NExT STEPS for PlaN SPoNSorS
Insurer reports should be obtained as soon as possible to allow for plan sponsors to calculate employer deductions and remittances, and to support reporting requirements. In addition, plan sponsors will need to consider how to handle employee deductions.
Plan sponsors affected by these changes should discuss the options for their program with their Morneau Shepell consultant. Before making a decision, it would be best to review all aspects/costs of the disability programs, such as payroll costs, premium taxes, union reactions, and/or impact on employees.
© 2012 Morneau Shepell Ltd. March 2012 | Volume 9, issue 3 | 4 of 7
aS aT fEBrUary 29, 2012
MarkET INdICES
The following table shows the Morneau Shepell monthly summary of returns from various market indices. It also includes returns from benchmark portfolios used by pension funds.
This practice provides objective advice on all aspects of asset management for pension funds, including investment policy statements, portfolio manager searches, investment performance measurement and investment strategy.
Jean Bergeron, FSA, FCIA, CFA, PartnerTel.: 514.392.7852Fax: 514.875.2673E-mail: [email protected]
Robert F. Boston, CFA, PartnerTel.: 416.380.2765Fax: 416.445.1858E-mail: [email protected]
ASSET MANAGEMENT CONSULTING PRACTICE
rETUrNS
Monthly Quarter to date
year to date 1 year
TSx groUP/PC-BoNd
DEX Universe Bond Index -0.4% 0.1% 0.1% 10.0%
DEX 91 Day Treasury Bill Index 0.1% 0.1% 0.1% 0.9%
DEX Short Term Bond Index -0.2% 0.1% 0.1% 4.6%
DEX Mid Term Bond Index -0.3% 0.6% 0.6% 11.6%
DEX Long Term Bond Index -0.8% -0.3% -0.3% 18.9%
DEX High Yield Bond Index 1.0% 3.1% 3.1% -1.7%
DEX Real Return Bond Index -1.2% -0.1% -0.1% 19.5%
CaNadIaN EQUITy
S&P/TSX Composite Index (Total Return) 1.7% 6.1% 6.1% -8.1%
S&P/TSX Composite Index Capped 1.7% 6.1% 6.1% -8.1%
S&P/TSX MegaCap Index 1.2% 4.9% 4.9% -9.9%
S&P/TSX 60 Index 1.5% 5.9% 5.9% -9.2%
S&P/TSX Completion Index 2.2% 6.7% 6.7% -5.2%
S&P/TSX Small Cap Index 2.3% 11.4% 11.4% -9.7%
BMO Small Cap Unweighted 3.6% 12.6% 12.6% -10.1%
BMO Small Cap Weighted 3.3% 11.8% 11.8% -7.6%
U.S. EQUITy INdICES
S&P 500 (US$) 4.3% 9.0% 9.0% 5.1%
S&P 500 (C$) 2.9% 6.1% 6.1% 7.1%
forEIgN EQUITy INdICES1
MSCI EAFE (C$) 3.9% 7.7% 7.7% -6.5%
MSCI World (C$) 3.0% 6.5% 6.5% -0.6%
MSCI ACWI (C$) 3.2% 7.5% 7.5% -0.4%
MSCI Europe (C$) 4.4% 7.7% 7.7% -6.8%
MSCI Pacific (C$) 2.9% 7.9% 7.9% -5.6%
MSCI Emerging Markets(C$) 4.1% 14.2% 14.2% 1.3%
oTHEr
Consumer Price Index (Canada, January 2012)
0.4%
0.4%
0.4%
2.5%
Exchange Rate US$/C$ -1.3% -2.7% -2.7% 1.3%
MorNEaU SHEPEll BENCHMark PorTfolIoS2
60% Equity/40% Bonds 1.3% 3.8% 3.8% 1.2%
55% Equity/45% Bonds 1.1% 3.5% 3.5% 1.7%
50% Equity/50% Bonds 0.9% 3.2% 3.2% 2.2%
45% Equity/55% Bonds 0.7% 2.9% 2.9% 2.7%
40% Equity/60% Bonds 0.7% 2.6% 2.6% 4.0%
1 Returns net of taxes on dividends, except for MSCI Emerging Markets.2 The returns are compounded monthly.
RISK MANAGEMENT CONSULTING PRACTICE
Our team provides a structured, comprehensive approach to pension risk management, including implementation of liability-driven investment strategies, advice on allocation of the risk budget within an asset-liability framework and execution of continuous and dynamic processes for risk reduction.
Patrick De Roy, FSA, FCIA, CFA, FRM, CERA, Partner Tel.: 514.392.7835Fax: 514.875.2673E-mail: [email protected]
© 2012 Morneau Shepell Ltd. March 2012 | Volume 9, issue 3 | 5 of 7
aS aT fEBrUary 29, 2012
TraCkINg THE fUNdEd STaTUS of PENSIoN PlaNS
This graph shows the changes in the financial position of a typical defined benefit plan since December 31, 2007. For this illustration, assets and liabilities of the plan were each arbitrarily set at $100 million as at December 31, 2007. The graph shows the impact of past returns on plan assets and the effect of interest rate changes on solvency liabilities.
Assets fell to their lowest level in February 2009, at which point the solvency deficiency (i.e. the difference between assets and solvency liabilities) reached $37 million. Liabilities climbed to their highest point in January 2012 (last month), and that month also showed the highest solvency deficiency yet, at $39.4 million.
A sigh of relief came in February 2012, when financial markets rallied while solvency rates increased resulting in a reduction of the solvency deficit. Assets climbed by 1.1% to about $112.5 million and liabilities fell by 2.0% to $147.7 million, with a combined effect of reducing the deficit by 10.7% to $35.2 million. Nonetheless, the current solvency deficit of this typical pension plan is still at its third highest level experienced during the period shown.
Please contact your Morneau Shepell consultant for a customized analysis of your pension plan.
THE EvolUTIoN of THE fINaNCIal SITUaTIoN of PENSIoN PlaNS SINCE dECEMBEr 31, 2007
Solvency Liabilities ($M)Assets ($M)
2008 2009 2010 2011 2012
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q47580859095
100105110115
120125130135140145150155160
Comments:
1. No consideration has been made for contributions paid into the plan or for benefits paid out of the plan.
2. Solvency liabilities are projected using the rates prescribed by the Canadian Institute of Actuaries for the purpose of determining pension commuted values. Early application of the 2009 standards is not reflected.
3. The underlying typical defined benefit plan is a final average plan with no pension indexing.
4. Solvency liability calculations take into account revised CIA guidance on the solvency valuation assumptions (annuity proxy) announced on February 16, 2011.
5. Assets are shown at full market value. Returns on assets are based on those of the Morneau Shepell benchmark portfolio (55% equities and 45% fixed income).
CaNada BoNd yIEldS
yIEld (CloSINg) CHaNgE 2012dEC. 2011 fEB. 2012
Overnight rate target
1.00%
1.00%
0 bp
3 months 0.82% 0.93% 11 bps
2 years 0.95% 1.10% 15 bps
5 years 1.27% 1.44% 17 bps
7 years 1.51% 1.58% 7 bps
10 years 1.94% 1.98% 4 bps
30 years 2.49% 2.60% 11 bps
Source: Bank of Canada
© 2012 Morneau Shepell Ltd. March 2012 | Volume 9, issue 3 | 6 of 7
aS aT fEBrUary 29, 2012
Comments:
1. The discount rates shown reflect the educational note published by the Canadian Institute of Actuaries entitled Accounting Discount Rate Assumption for Pension and Post-employment Benefit Plans (September 2011).
2. The expense is established as at December 31, 2011, based on the average financial position of the pension plans used in our 2011 Survey of Economic Assumptions in Accounting for Pensions and Other Post-Retirement Benefits report (i.e. a ratio of assets to obligation value of 85% as at December 31, 2010). Also, we are assuming that, under the international accounting, the employer elected the exemption at transition with regards to past gains and losses, and that future gains and losses are recognized in other comprehensive income (excluded from expenses shown).
3. The return on assets corresponds to the return on the Morneau Shepell benchmark portfolio (55% equities and 45% fixed income).
4. The actuarial obligation is that of a final average earnings plan, without indexing (two scenarios: with and without employee contributions).
IMPaCT oN PENSIoN ExPENSE UNdEr INTErNaTIoNal aCCoUNTINg
Every year, companies must establish an expense for their defined benefit pension plans.
The graph shows the expense impact for a typical pension plan that starts the year at an arbitrary value of 100 (expense index). The expense is influenced by changes in the discount rate based on high-quality corporate and provincial (adjusted) bonds1 and the median return of pension fund assets.
The pension expense has decreased since the beginning of the year largely due to asset returns above expectations.
The table below shows the discount rates for varying durations and the change since the beginning of the year. A plan’s duration generally varies between 10 (mature plan) and 20 (young plan).
dISCoUNT raTE
dUraTIoN dECEMBEr 2011
fEBrUary 2012
CHaNgE IN 2012
11 4.16% 4.01% -15 bps
14 4.39% 4.23% -16 bps
17 4.51% 4.37% -14 bps
20 4.58% 4.46% -12 bps
Please contact your Morneau Shepell consultant for a customized analysis of your pension plan.
ExPENSE INdEx froM dECEMBEr 31, 2011
31-1230-0930-0631-0331-122011 2012
(In %)Discountrate 4.3 4.2 4.2Return on assets(55% equities) n/a 2.4 1.1
Non-contributory planContributory plan
80
85
90
95
100
105
110
115
120
© 2012 Morneau Shepell Ltd. March 2012 | Volume 9, issue 3 | 7 of 7
Please contact your Morneau
Shepell consultant for additional
information about this newsletter.
aBoUT US
Morneau Shepell Inc. is the largest Canadian-based firm providing human resource consulting and outsourcing focused on pensions, benefits, employee assistance program (EAP) and workplace health management and productivity solutions. We offer business solutions that help our clients reduce costs, increase employee productivity and improve their competitive positions by supporting their employees’ financial security, health and well-being.
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FREDERICTON506.458.9081
HALIFAX902.429.8013
KITCHENER519.568.6935
LONDON519.438.0193
MONTRéAL514.878.9090
OTTAWA613.238.4272
PITTSBURgH412.919.4800
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ST. JOHN’S709.753.4500
TORONTO416.445.2700
VANCOUVER604.642.5200
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www.morneaushepell.com
CONTRIbUTING EdITORS
Monica Bell-Johns, CEBS Benefits Consulting
Jan robinson, gBa Benefits Consulting
larry Swartz, ll.B., Cfa Pension Legislation
