Monday, May 18, 2020

Charting a new course at the Air Canada pension plans

Yaelle Gang | May 15, 2020
In 2009, when Vincent Morin walked through the doors of Air Canada as the vice-president of asset allocation and strategy for its investment division, he faced a tough situation.
The company’s eight defined benefit pension plans, which buy units of a single master trust fund, were facing a $2.6 billion deficit. In the following years, the deficit grew, reaching $4.2 billion in 2012.
Tackling the investments
As of year-end 2019, all of the airline’s Canadian pension plans are at least 100 per cent funded on a solvency basis.
“When I joined, the mandate was to create a whole new strategy [that was] much more focused on liability-driven investing and reducing the risk coming from the pension plan, because it became a very big enterprise risk management issue at Air Canada,” says Morin.
Back in 2009, the pension plans’ fund was in a traditional portfolio of 60 per cent equities and 40 per cent bonds, all managed externally. Morin and his team led the investment turnaround through many small steps, which included adding fixed income exposure and building an alternative portfolio comprised of real estate, infrastructure, private equity, private debt and other sub-asset classes. The team also implemented a portable alpha — or hedge fund — program to try to generate additional returns on top of the traditional asset classes.
Getting to know
Vincent Morin
Job title: President of Trans-Canada Capital Inc.
Joined Air Canada: In September 2009 and launched TCC in 2019
Previous roles: Investment consultant at Mercer Canada
What keeps him up at night: The current coronavirus crisis and its unknown short- and long-term impacts on the global economy and asset prices
Outside of the office he can be found: At his cottage, skiing or travelling
In terms of asset mix, the investment fund currently sits at 87.5 per cent fixed income, 10 per cent equities, 20 per cent alternatives and 10 per cent hedge funds, totalling more than 100 per cent because it uses leverage.
“Over time, gradually, I think we did over 30 different steps in de-risking the plan and changing the asset allocation,” he says. “You just cannot move that big a plan. It was a very big boat to turn around.”
Opportunities in fixed income
With fixed income yields at historic lows and 87.5 per cent of the investment fund’s portfolio invested in the asset class, it pursues a liability-driven investment strategy and is a very active manager. In addition, it keeps a pure separation between alpha and beta, notes Morin. “Beta is the benchmark. It’s built to make sure that there’s good and sound risk management done to match our liabilities’ structure.”
The portfolio is largely comprised of long-term, investment-grade Canadian bonds and doesn’t take big bets on duration, but the fund does arbitrage trades and curve trades globally without taking any foreign currency or high-yield bond risk. For example, if the team believes there’s an interesting point on the curve in France, it will play it, he says. “It will be a long-short position, so there’s no actual exposure to France’s interest rates, but we’ll try to arbitrage that market and be able to capture some return on this.”
The team has had significant success in fixed income. The asset class’ active value-add has been above one per cent on average over a 10-year period, highlights Morin. Plus, since fixed income makes up 87.5 per cent of the fund, the value added in dollar terms is equal to the value-add targeted by the fund from its alternative book. A value-add above one per cent is also significant when expected yields are at two per cent, he adds.
Trans-Canada Capital
By turning Air Canada’s large pension deficit into a surplus, the investment team solved a problem for the company. It also shifted the team responsible for the airline’s pension investments to a new subsidiary called Trans-Canada Capital Inc.
While TCC will continue to manage the investments for Air Canada’s pensioners, it will also make certain funds available to other institutional investors. “We built a great track record over the years, a very different approach than we could see in the market,” says Morin, who is president of TCC.
The team believed it had something to offer to other investors, he adds, noting that, as the fund reduced risk, opening up its investments to others would allow the investment team to continue growing, retain its talent and also diversify Air Canada’s activities.
TCC is offering two fixed income strategies and two hedge fund strategies for institutional investors to buy into, and it plans to expand its offerings.
TCC’s internal hedge fund, launched in February 2019, is its flagship fund. It originally started with the Air Canada investment team using sophisticated transactions to implement its tactical asset allocation. The team was executing these trades using options, volatility contracts and over-the-counter derivatives, says Morin. “At some point, we realized early in the process that what we are managing . . . looks much more like a hedge fund than an actual tactical asset allocation book; better implementation, better diversification, a lot of breadth as well, looking
at different markets.”
Opening up the hedge fund
While the TCC team manages assets for Air Canada’s defined benefit plans, they’re members of its defined contribution arrangement.
The investment team has been using an internal hedge fund strategy for the DB plan since 2013, but it launched a formal fund in 2017 so employees could participate with their own assets.
While it wasn’t mandatory for employees to invest, everybody did, since they could access investments — such as complex derivatives transactions with low trading costs — they couldn’t reach as individual investors.
Next, the team focused on portfolio construction for this strategy. Today, it includes quantitative strategies, systematic strategies, fundamental analysis and alternative value transactions. In 2013, the internal hedge fund began operating as a segregated account; in 2017, it became a separate investment vehicle.
In September 2019, TCC launched a fund of hedge funds. “We have a 10 per cent allocation to external hedge funds and we repackaged it to be able to offer that approach to potential external clients.”
The fund is market agnostic and aims to have no correlation with equity markets, says Morin. “The last thing we want to do is to bring a portable alpha program, which will react exactly in the same direction if there’s a market correction. If it reacts in the same direction as the equity market when there’s a crash, it doesn’t do its job.”
Currently, TCC has $2 billion invested through external hedge funds and $1 billion invested in its internal strategy, notes Morin. “We know what we’re good at. We also know what we are not good at. So what we cannot realistically do internally we’ll give a mandate to an external manager to do.”
Final destination
The Air Canada pension plans are maturing quickly, with about 60 per cent of liabilities tied to retirees and the DB plans mainly closed to new entrants.
At some point, it will make sense to lock in the benefits for pensioners instead of continuing to take risk, says Morin, noting this influenced the airline’s decision to start its own life insurance company to purchase annuities.
Many pension funds are buying annuities to lock in the pension promise. In fact, according to a report by Willis Towers Watson, Canada’s group annuity market hit $5.2 billion in sales in 2019, up from $4.6 billion in 2018 and $3.7 billion in 2017.
While annuitizing is a natural move for many DB pensions, the Air Canada plans are valued at about $21 billion, making their total size much larger than many plans. Indeed, the airline’s plans were paying out more than $750 million in annual pension payments two years ago; and when looking at the 2018 annuity market, the biggest insurance company active in the space was paying a similar amount in total pension payments, notes Morin.
As well, despite the active growth in Canada’s annuity market, he believes the Air Canada plans will be difficult to annuitize because of their total size. “The transactions are bigger, but the liabilities have grown over the past few years, and there’s some scarcity as well in the fixed income world to find interesting securities . . . to back those liabilities.”
In addition to market capacity, pricing is also a consideration, notes Morin. “You can purchase a big amount of annuities, but we believe the structure we are proposing will result in a better price for the plans.”Air Canada has applied to the Office of the Superintendent of Financial Institutions for approval to launch its life insurance company. If approved, the company will operate as a subsidiary of Air Canada with capital seeded by the airline. And TCC will manage assets for the life insurance company, in addition to the assets for the pension plans.
While the mandate would be different for the pension plan assets and the life insurance company assets, fixed income will be core to both, says Morin.
Yaelle Gang is editor of the Canadian Investment Review.
Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.
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    NDP calling for two weeks of sick leave for all Canadians

    The Canadian Press | May 15, 2020
    The federal New Democrats say all Canadians require access to two weeks of sick leave benefits as provinces start moving to reopen their economies while fighting the coronavirus and the federal government should pay for it.
    NDP Leader Jagmeet Singh said Wednesday that workers without sick leave who are put back on the job during the pandemic will be left to decide between protecting others from infection and paying their bills. “We need paid sick leave, there is no question about it. It should no longer be an option.” 
    Dr. Theresa Tam, Canada’s chief public health officer, has been reminding people almost daily to stay home when they’re sick, even with mild symptoms, or else risk further transmission of the coronavirus.
    The government should be paying people to do just that, said Singh, suggesting the cost could be covered by the Canada Emergency Response Benefit or the employment insurance system.
    The NDP pitched the idea to the Liberals but they declined to include it in a bill presented to the House of Commons on Wednesday in the weekly opportunity to pass legislation. Singh tried to put the idea forward as a motion himself, calling on the Liberal government to work on paid sick leave with the provinces, but didn’t receive the unanimous vote required to present it on short notice.
    Employment Minister Carla Qualtrough said the federal government is in talks with the provinces about how they can deal with the issue. “We are very aware that a key component to our return to work safely, and positioning businesses and workers to feel confident they can go back to work, will be making it easier to stay home if you’re feeling sick,” she said at a briefing on Wednesday. “We’re going to look to see how we can continue to support Canadians moving forward and in what way we can best do that.”
    In the meantime, people who’ve received no income for 14 days while sick with the coronavirus or while under quarantine qualify for CERB payments of up to $500 a week.
    According to a briefing note by the Canadian Centre for Policy Alternatives, only 38 per cent of illness or disability leave was paid by employers in Canada in 2019. Low-income workers, who’ve often been on the front lines of the pandemic, are more likely to be paid only if they work, creating an obvious incentive to go to work sick.
    Just one in five workers making $15 an hour or less is able to take paid leave for more than week, according to the briefing note. Singh said that should change and the fix shouldn’t be temporary. “We want to see this as a permanent change, knowing that what we’re faced with as a crisis has changed the reality for our country, for the world,” he said.

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    56% of Canadians say coronavirus negatively impacting mental health: survey


    Staff | May 11, 2020
    More than half (56 per cent) of Canadians said the coronavirus is having a negative impact on their mental health, with social isolation the top contributing factor, according to a new survey by Sun Life Canada.
    The other factors include concern for loved ones (57 per cent), fear of contracting the virus (56 per cent) and financial concerns (51 per cent). The survey also found the virus is having a greater negative impact on the mental health of women (62 per cent) compared to men (49 per cent).
    “The COVID-19 pandemic is the most serious public health emergency of our lifetime,” said Jacques Goulet, president of Sun Life Canada, in a press release. “Canada was already facing a mental-health crisis. The pandemic adds new layers of stress and we’re deeply concerned about the long-term mental-health implications that may follow. At Sun Life, we’re focused on supporting our employees, advisors, clients and all Canadians to manage their mental well-being.”
    Read: Webinar: Coronavirus and workplace mental health
    Close to 60 per cent of Canadians whose mental health has been negatively impacted said they aren’t receiving treatment or social support. When they were asked what barriers were stopping them from receiving support for their mental health, the responses were: they can’t afford it (22 per cent); they don’t know where to go or who to ask for help (17 per cent); and they’re embarrassed to ask for help (12 per cent).
    “During the pandemic, people are feeling a mix of emotions including anxiety, stress, fear and nervousness,” said Dr. Sam Mikail, director of mental-health solutions at Sun Life, in the release. “It’s important to listen to your body, understand how you’re feeling and reach out for help. Connecting with a friend or family is a great first step. But don’t hesitate to seek professional advice. There are many resources either through your employee benefits or free in the community that can help you manage your mental health. We’re all in this together.”
    Read: Social connection can build or erode mental-health, resilience

    Coronavirus negatively impacting mental health of 50% of Canadians: survey


    Kelsey Rolfe | May 8, 2020
    Half of Canadian employees said their mental health has been negatively impacted by the coronavirus pandemic, according to a new survey by Teladoc Health Inc.
    The survey, which polled more than 1,500 Canadian workers, found women (57 per cent) were more likely to report a harmful impact on their mental health than men (43 per cent). More than half (52 per cent) of respondents between the ages of 18 to 34 felt their mental health had taken a hit. In comparison, respondents over the age of 65 — notably those most at risk of the virus — experienced the lowest mental-health impact, with just 37 per cent saying their mental health had worsened.
    David Sides, chief operating officer at Teledoc, says the high number of people experiencing negative effects doesn’t come as a surprise. “The burden that’s been placed on everyone, [with] working at home, childcare, you might be homeschooling — I can see why that’s the case.”
    The survey also found an increasing number of Canadians are open to remote mental health-care solutions. Two-thirds (62 per cent) of respondents said they’re open to using virtual mental-health care, compared to 40 per cent who said the same in an October 2019 survey. As well, 85 per cent of Canadians who have access to an employee benefits plan said those plans should offer virtual mental-health care as an option.
    “I was pleased to see that people are more open to remote forms of mental-health care — maybe partly by necessity, but that’s a big increase,” says Sides, adding he expects this interest to continue after the pandemic.
    Employers are also taking a variety of actions to support their employees’ mental health, with 39 per cent of respondents saying their employer has offered additional mental-health support, raised the discussion of employees’ mental-health needs and/or waived fees for mental-health support.
    Indeed, Teladoc is one of these employers. In the wake of the pandemic, the company made its own service available to employees’ families. Within the first two weeks, several hundred new users accessed the platform, says Sides.
    “The health of your immediate family or extended family also affects your mental health. If your spouse or your parents are having difficulty, it could impact you, especially as many families are compressing right now. Everyone’s in the same space at the same time now. We thought that was an important benefit to make available.”
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    Top 100 Pension Funds: How best to ensure pensioners get their dues?

    Michael McKiernan | June 29, 2018
    Ken Eady understands the challenges a defined benefit pension plan can present for plan sponsors, particularly when they find themselves in financial difficulty.
    “Healthy companies aren’t always too crazy about the liability, so it can become a heavy weight to carry when there is trouble maintaining financial status. That’s why they seem to generally be in decline. Nobody is starting new DB plans,” says Eady, who sits on the board of the Store and Catalogue Retiree Group, an independent organization representing the interests of Sears Canada Inc. pensioners.
    “But on the other side of the ledger, there are the promises these companies made,” he adds. “A pension is not some gift you got for being a nice guy or a good employee. From the beginning of your employment, it was part of the deal that when you retire, the pension would be there for the rest of your life.”
    Eady knows the ins and outs of the pension promise better than most people. By the time he retired in 2003, he had made his way up to becoming a senior executive in Sears’ human resources department, working out of its downtown Toronto headquarters. For much of his 30 years of service, the features of the company pension and benefits plans formed a key part of his pitch to new and prospective hires.
    “It was to attract people, and for most companies at that time, not just Sears, it was a cost of doing business,” says Eady. “But never in all the time that I spoke about that promise did it occur to me that it might not be kept. Maybe I’m naive, but if that’s the case, then I’m not the only one.”
    With the company having entered bankruptcy protection in June 2017, Eady and 17,000 fellow defined benefit plan members are now staring at a potential 19 per cent cut to their future pension payments as a result of a $267-million deficit.
    “If laws can’t protect against that, then they need to be strengthened,” says Eady.
    The Sears saga
    Eady joined the company in happier times. By the early 1970s, Sears was thriving, with two decades of history already behind it in Canada. Its U.S. parent company had teamed up with a local retailer, Simpsons, to bring its department store and mail-order catalogue business north of the border in 1953.
    Eady says he had few concerns when he retired. Despite a reported drop in same-store sales starting in 2005, the pension plan appeared insulated from the trouble. As recently as 2008, Sears Canada’s annual report disclosed a $219-million surplus in the main defined benefit plan. That was the year the company closed the plan to new members.
    That surplus would be the last, with the global financial crisis gobbling it up and spitting out a $48.5-million deficit the following year. The figure piqued the interest of the retiree group, which stepped up its advocacy as the writing began to appear on the wall for Sears Canada in the subsequent years.
    With the group having predicted the company’s demise in 2013, it began urging both Sears Canada and the Financial Services Commission of Ontario to wind up the pension plan before things got worse. In the meantime, it started writing to politicians of all stripes about the retirees’ concerns.
    Despite those concerns, the company took advantage of Ontario’s solvency relief measures in 2016 to reduce the amount — to $13.9 million that year from $20.2 million, with further reductions in 2017 and 2018 — of the special payments it was making to cover the pension shortfall. At the same time, a new management team attempted an ultimately unsuccessful reinvention strategy before Sears Canada finally sought protection under the Companies’ Creditors Arrangement Act and announced a plan to shut 60 stores and lay off nearly 3,000 workers in June 2017.
    In line with an order of the Ontario Superior Court of Justice, the company suspended its special payments at the end of September 2017, while the restructuring process played out, and ceased providing post-retirement benefits, which included life insurance, medical and dental coverage. In the meantime, Morneau Shepell Ltd. took over administration of the pension plan.
    A look at the guarantee funds
    In March 2018, Sears Canada retirees got a measure of good news in the provincial budget, when Ontario’s governing Liberals announced that the pension benefits guarantee fund, a government run insurance program for plans with insolvent sponsors, would boost its monthly coverage limit by 50 per cent to $1,500 from $1,000. It also backdated the change to ensure Sears pensioners would be eligible for the extra money.
    Assuming the predicted Sears figures turn out to be accurate, the fund would cover the 19 per cent shortfall for the first $1,500 of every pensioner’s monthly cheque. For those receiving larger payments, anything over $1,500 would still be subject to the 19 per cent reduction.
    “It’s a worthwhile investment, but the weakness of it is that it only applies in Ontario, whereas the Sears collapse has had an impact on people from coast to coast. There were stores in Victoria, B.C., St. John’s, Newfoundland, and everywhere in between,” says Eady, noting no other province has a similar scheme.
    Wanda Morris, vice-president of advocacy at CARP, a national retiree organization, says Ontario’s pension guarantee fund is a worthy idea.
    “The problem is the order of magnitude,” she says, pointing to the U.S. equivalent, the Pension Benefit Guaranty Corp., whose maximum guarantee is US$5,420 per month for someone aged 65. The limit is on a sliding scale, depending on retirees’ ages when they begin receiving benefits, such that younger people receive a smaller guarantee.
    Britain’s Pension Protection Fund, set up in 2004, says it generally covers 100 per cent of the pension for those who had already retired when the plan sponsor went bust. For those who retired early or are yet to stop working, the fund guarantees 90 per cent of their promised value, up to a cap of 3,250 pounds per month (about $5,700).
    At a minimum, Morris says the British and U.S. examples should inspire every Canadian jurisdiction to cover at least the year’s maximum pensionable earnings, which for 2018 is $55,900 or $4,658 per month.
    But Norma Nielson, a recently retired professor of insurance and risk management at the University of Calgary’s Haskayne school of business, warns against any clamour for guarantee funds.
    By creating its pension guarantee fund in 1980, the Ontario government undertook a natural experiment in the area, she says. In a 2007 study, Neilson found that the existence of the fund was either the cause of, or showed high correlation with, lower solvency funding levels in that province in comparison to other Canadian jurisdictions.
    “Sponsors were basically able to get away with investing less in the plan, which is what we describe as a moral hazard,” says Nielson.
    She notes such funds often start with a flat-fee levy on defined benefit plans based on the size of their membership but says most, including Ontario’s guarantee fund, have switched to a risk-based assessment in the interest of fairness.
    Malcolm Hamilton, a senior fellow at the C.D. Howe Institute, sees guarantee funds as a form of political cover for governments that want to minimize the appearance of a taxpayer bailout for failing private plans.
    “They can pretend it’s all self sufficient and that public support isn’t inevitable,” says Hamilton.
    But Hamilton says the charade is harder to keep up as the number of defined benefit plans dwindles while the premium levied on those remaining surges.
    “The bottom line is that there is no viable way for healthy pension funds to support unhealthy ones, so eventually some public subsidy is going to be required. If you look at the U.K. and the U.S. ones, they’re all basically insolvent,” says Hamilton, who spent most of his 40-year career as an actuary at Mercer.
    In 2017, Britain’s Pension Protection Fund reported a 120 per cent funding ratio, or a surplus of six billion pounds ($10.5 billion), for plans currently under its control for which it’s already paying benefits. While that looks promising, its PPF 7800 index, which tracks the funding position of all of the roughly 5,600 plans that are potentially eligible for future entry, recorded a total deficit of 115.6 billion pounds ($200 billion) as of March 2018. The fund, then, could face a significant challenge if it started to see a significant number of new claims.
    In the United States, the Pension Benefit Guaranty Corp. reported a US$65.1-billion deficit in its multi-employer plan and a US$10.9-billion shortfall in its single-employer insurance program at the end of the 2017 fiscal year.
    Hamilton says Ontario’s less generous version could allow the province to muddle through what he sees as the dying days of private sector defined benefit plans.
    “With any luck, there won’t be too much money taxpayers have to throw at it,” he says. “There aren’t that many DB plans left, and they could get lucky if higher interest rates take the pressure off. In any case, it’ll be minor compared to government subsidization of public sector plans.”
    Disclosable events and other interventions
    In another apparent nod to Sears pensioners, Ontario’s budget also promised to develop a so-called disclosable events regime that would force plan sponsors to alert regulators to certain corporate developments. The note about the issue in the budget referred to events “such as significant asset stripping or the issuance of extraordinary dividends.”
    Sears Canada retirees have hired a litigation investigator to explore the possibility of claims linked to almost $3 billion in dividends paid by the company to shareholders as it sold off many of its key Canadian assets between 2005 and 2013, which continued even as the pension plan slipped into the red. Sears Canada has insisted that all of its transactions were within the law.
    Eady hopes the regime that emerges will mirror the one in the United States, which allowed the Pension Benefit Guaranty Corp. to negotiate a veto over the sale of certain properties held by Sears’ U.S. parent company in 2016. When the U.S. federal agency finally gave the green light to the sale of the assets, it did so in return for a US$400-million cash injection into the company’s underfunded U.S. pension plan.
    “Earlier intervention is necessary and desirable,” says Eady.
    Jeff Sommers, a partner in the pension and benefits practice group at Blake Cassels & Graydon LLP, says the government plan is light on details at this stage but notes his clients, which include both public and private plan sponsors and administrators, will be watching developments closely.
    “I can see the logic, but imposing those kinds of obligations is not going to be well-received by many sponsors,” he says.
    At the federal level, Prime Minister Justin Trudeau has remained noncommittal about legislative responses to the Sears Canada situation, but two members of Parliament are trying to force his hand with private member’s bills aimed at boosting the priority of pension plan members in bankruptcy proceedings.
    The law as it stands classifies the unfunded portion of a pension plan as an unsecured debt, putting pension plan members behind secured creditors such as banks and bond holders. Bloc Québécois MP Marilène Gill wants to create a super priority for pensioners that places them at the front of the queue, while New Democratic Party MP Scott Duvall’s less radical proposal suggests putting them on par with secured creditors.
    Ian Lee, an associate professor in the Sprott school of business at Carleton University, says either version risks reducing the availability of capital to companies with defined benefit pension plans and, therefore, hastening their decline in the private sector.
    “As a former banker, I can tell you that banks are not in the business to give away money. If they thought their collateralized loans were not, in fact, going to be as secure because of a change in the Bankruptcy and Insolvency Act, then clearly, they will become more conservative in their lending,” he says.
    “The knock-on consequences would be horrific.”
    CARP doesn’t believe the repercussions of a priority change would be quite so dramatic. In Morris’ view, the current law doesn’t do enough to account for the needs of shortchanged pensioners.
    “These people are vulnerable, and they’re not at an age where they can simply go back to work or cut back on their spending. They’ve planned around what they were promised,” she says.
    “Banks and other investors are in a position to absorb more risk.”
    In the meantime, Sears Canada retirees are placing their hopes in complicated arguments about whether the pension liability amounts to a deemed trust, which may elevate their priority in the CCAA proceedings.
    PUTTING A RING ON IT
    Faced with a large pension deficit, U.S.-based Sears Holdings Corp. entered into an agreement with the Pension Benefit Guaranty Corp. in March 2016 to take a number of actions to shore up its plan. The agreement provided for a ring-fencing arrangement that meant the company couldn’t sell or encumber 140 Sears properties without the U.S. federal agency’s approval. In November 2017, the federal agency released the 140 properties from the ring-fencing arrangement. In exchange, Sears agreed to pay US$407 million into the pension fund from proceeds derived from selling or encumbering the properties. The 2017 agreement provided Sears with relief from contributions to the pension plans for two years, other than a US$20-million supplemental payment due in the second quarter of 2018.
    Questioning the DB guarantee
    Michael Armstrong, an associate professor at Brock University’s Goodman school of business, says the Sears Canada situation and the others that will inevitably follow should prompt a shift in the way employers sell defined benefit pension plans to employees. Workers also need to educate themselves about the realities of the pension promise, he suggests.
    “Instead of fighting so hard as unions and employees for DB plans, we should realize they’re not really guaranteed,” he says.
    That goes for public plans as well as private ones, he says, pointing to the City of Detroit’s decision to cut pensions as part of its bankruptcy proceeding. In fact, he has performed a risk assessment of his own pension at Brock. “It’s likely universities are going to be around for a long time. But on the other hand, if they ever did run into trouble, they can’t hike their prices or dig into profits. It’s not as insecure as if I worked for an auto manufacturer, but it’s also not as solid as if I worked for the federal government,” says Armstrong.
    “DB plans are not risk-free, and that needs to be taken into account,” he adds.
    Michael McKiernan is a freelance writer based in St. Catharines, Ont.
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    Top Pension Systems in the World
    How the U.S. compares may (or may not) be a surprise

    By JEAN FOLGER
    Updated Feb 28, 2020
    TABLE OF CONTENTS
    Top 3 Pension Systems
    How the U.S. Scored
    How All Countries Ranked
    Index Scoring Explained
    The Bottom Line

    The quality of pension systems available to workers varies greatly across the globe. The Netherlands has the best, while the U.S. isn't even close to the top, according to the Melbourne Mercer Global Pension Index 2019.1

    The index, published by the Monash Centre for Financial Studies in collaboration with global consultant Mercer, examines the pension systems of countries across the Americas, Europe, and Asia-Pacific and makes recommendations for how they can improve. Here, we take a look at the results of the latest index, released in October 2019, which ranked the pension systems of 37 countries representing more than 63% of the world's population.2

    The Top 3 Pension Systems
    The index compares retirement income systems and rates each based on its adequacy, sustainability, and integrity. The index value for each country is represented by a value between zero and 100, with higher value signifying more favorable pension systems.

    KEY TAKEAWAYS

    The Netherlands, Denmark, and Australia, respectively, have the best pension systems.
    The U.S., meanwhile, ranks far from the top.
    Common challenges pension systems around the world need to address include increasing the average retirement age due to rising life expectancy, encouraging more savings, and limiting access to funds before retirement.

    The average score for the 37 countries included in the 2019 index was 59.3. The top three countries with the highest overall index grade were:2

    1. Netherlands

    With an index value of 81, the Netherlands received the highest score for 2019 and ranked first for the second year in a row.2

    Its retirement income system uses a flat-rate public pension and a semi-mandatory occupational pension linked to earnings and industrial agreements. Most of the Netherlands' employees are members of these occupational plans, which are industry-wide defined-benefit plans. Earnings are based on a lifetime average.3

     The index found that the overall index value could improve with:
    Increasing household savings and reducing household debt

    Increasing workforce participation among older workers as life expectancy rises

    2. Denmark

    Denmark came in a close second with an overall score of 80.3.2

    Worldwide, pension systems are under more pressure than ever before because of rising life expectancy, increased government debt, uncertain economic conditions, inflation risk, and a shift towards defined-contribution plans.

    Denmark has a public basic pension scheme, a supplementary pension benefit tied to income, a fully funded defined-contribution plan, and mandatory occupational schemes. 4 The index noted that Denmark's score could be improved by:
    Increasing household savings and reducing household debt

    Introducing measures to protect the interests of both spouses in a divorce

    Increasing workforce participation among older workers as life expectancy rises

    3. Australia

    Australia ranked third with an overall index value of 75.3 in 2019.2 Its pension system includes a means-tested age government pension, mandatory employer contributions paid into private-sector plans (primarily defined-contribution plans), and voluntary contributions from employers, employees, and the self-employed paid into private-sector plans.5 

    Here's what Australia could do to improve its overall index value:


    Increasing the net replacement rate in the government pension for average income earners

    Increasing household savings and reducing household debt

    Mandating that part of the retirement benefit must be taken as an income stream

    Increasing workforce participation among older workers as life expectancy rises

    Increasing the pension age as life expectancy rises

    How the U.S. Scored

    The U.S. tied with Malaysia ranking 16     with a score of 60.6, which was better than 2018 when it came in at 19 with a score of 58.8.12 The U.S. retirement income system includes Social Security and has voluntary private pensions, which can be occupational or personal.


    The index had numerous recommendations for what the U.S. system could do to improve its overall index value:


    Raise the minimum pension for low-income retirees

    Adjust the level of mandatory contribution for median-income earners

    Improve the vesting of benefits and maintain the value of benefits through to retirement
    Limit access to funds before retirement

    Require that part o    f the retirement benefit be taken as an income stream

    Increase Social Security funding

    Raise the state and private pension age to receive benefits

    Provide incentives to delay retirement and increase workforce participation among older workers

    Provide access to group retirement plans for workers who don’t have an employer-sponsored plan

    How All Countries Ranked

    The following chart shows the 37 countries included in the index and how their pension systems scored and ranked in 2019:2


    GLOBAL PENSION SYSTEM RANKING BY COUNTRY
    RANK COUNTRY 2019  INDEX 
    SCORE
    1 The Netherlands 81
    2 Denmark 80.3
    3 Australia 75.3
    4 Finland 73.6
    5 Sweden 72.3
    6 Norway 71.2
    7 Singapore 70.8
    8 New Zealand 70.1
    9 Canada 69.2
    10 Chile 68.7
    11 Ireland 67.3
    12 Switzerland 66.7
    13 Germany 66.1
    14 United Kingdom 64.4
    15 Hong Kong 61.9
    16 United States 60.6
    16 Malaysia 60.6
    18 France 60.2
    19 Peru 58.5
    20 Colombia 58.4
    21 Poland 57.4
    22 Saudi Arabia 57.1
    23 Brazil 55.9
    24 Spain 54.7
    25 Austria 53.9
    26 South Africa 52.6
    27 Italy 52.2
    27 Indonesia 52.2
    29 Korea 49.8
    30 China 48.7
    31 Japan 48.3
    32 India 45.8
    33 Mexico 45.3
    34 Philippines 43.7
    35 Turkey 42.2
    36 Argentina 39.5
    37 Thailand 39.4

    Source: Melbourne Mercer Global Pension Index 2019

    Index Scoring Explained


    The Melbourne Mercer Global Pension Index is calculated using the weighted average of three sub-indices. The average sub-index scores for all 37 countries were 60.6 for adequacy, 69.7 for integrity, and 50.4 for sustainability.2 This is what each sub-index takes into consideration:

    Adequacy Sub-Index


    The adequacy sub-index, which represents 40% of a country's overall index value, looks at how a country's pension system benefits the poor and a range of income earners. Additionally, the adequacy measure considers the system's efficacy and the country's household savings rate, household debt, and rate of homeownership.

    Sustainability Sub-Index

    The sustainability index, which represents 35% of a country's overall index score, considers factors that can affect how sustainable a country's retirement fund system. Indicators include the level of coverage of private pension plans, the length of expected retirement now and in the future, the labor force participation rate of older workers, government debt, and economic growth.

    Integrity Sub-Index


    The integrity sub-index makes up 25% of a country's overall index value. It examines the communication, costs, governance, regulation, and protection of pension plans within that country. It also considers the quality of the country's private sector pensions because, without them, the government becomes the only pension provider.

    The Bottom Line

    The Melbourne Mercer Global Pension Index includes recommendations to improve each country's retirement-income systems, acknowledging that no universal solution exists because each system has evolved from unique economic, social, cultural, political, and historical circumstances.

    Common challenges in pension systems around the world include the need to increase the average retirement age to reflect increasing life expectancy, encourage more savings, and increase access to private pensions for the self-employed. Pension systems globally should also limit access to funds before retirement and improve transparency to improve participants' understanding and confidence.

    ARTICLE SOURCES

    Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.



    Mercer. "Global Pension Index Reveals Who Is the Most and Least Prepared for Tomorrow's Ageing World." Accessed Feb. 28, 2020.


    Monash University. "Global pension index uncovers strong correlation between household debt and pension assets." Accessed Feb. 28, 2020.


    Government of the Netherlands. "Pension." Accessed Feb. 28, 2020.


    Government of Denmark. "How does the pension scheme work in Denmark?" Accessed Feb. 28, 2020.


    Government of Australia. "Age Pension." Accessed Feb. 28, 2020.
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    Work-from-home productivity pickup has tech CEOs predicting many employees will never come back to the office

    Silicon Valley leaders tell MarketWatch they agree with Twitter’s stance on allowing workers to stay at home forever if they wish
    MarketWatch photo illustration/iStockphoto

    Published: May 16, 2020 By Jon Swartz

    THIS IS ABOUT WHITE COLLAR PROLETARIANS* 

    If you rebuild the workplace after COVID-19, will the workers ever come back?

    In Silicon Valley, the answer from many tech companies is that many won’t, and maybe that’s a good thing.

    In recent days, Twitter Inc. US:TWTR has said that employees have the option of never coming back to the office to work, while Facebook Inc. US:FB, Google parent Alphabet Inc. US:GOOGL US:GOOG, Salesforce.com Inc. US:CRM and Slack Technologies Inc. US:WORK have said they don’t expect workers back in the office until 2021 — if then.


    That just may be the beginning: At least six prominent tech companies are considering permanently moving a large slice of their workforces to work-from-home status, their chief executives told MarketWatch this week.


    “It’s hard to not see 20% to 40% of our workforce be remote,” Slack CEO Stewart Butterfield told MarketWatch in an interview Thursday on — appropriately enough — a Zoom US:ZM video call.

    “We need to make real-estate decisions long in advance, two to three years, and are in the speculative conversation now if we have 30%, 40% fewer desks,” Butterfield said in discussing conversations he was having with fellow Slack executives this week. “We may make the office more of a hotel.”


    Don’t miss: Companies reveal their plans for what work will look like when America returns to the office

    The COVID-19 pandemic forcing those who could work from home to do so has led to a surprising result — improved productivity. U.S. workers were 47% more productive in March and April than in the same two months a year ago through cloud-based business tools, chat applications and email, according to an analysis of 100 million data points from 30,000 Americans by workplace-monitoring company Prodoscore.

    “I was pretty wrong about this. I thought productivity was going to plunge, but it has been very good,” Okta Inc. CEO Todd McKinnon US:OKTA added, as the company considers a new dynamic work initiative. He said he could see Okta following Twitter’s path “until there is a vaccine or a treatment.”

    As small businesses and nonessential services slowly begin to reopen, tech CEOs like Butterfield and McKinnon US:OKTA are in internal discussions about fundamental changes to their workforces with far-reaching social implications. Not only are they open to letting a majority of employees work remotely; they’re vastly scaling back travel and attendance at conferences, hiring talent from all parts of the country, reducing office space and using the office as a place to socialize as much as work.


    The financial impact on cities like San Francisco and Seattle, where tech is the chief economic engine, could be devastating. Use of commercial real estate and public transit are likely to decline. Restaurants, bars and other gathering spots could be endangered. And then there is the toll on workers, many of whom feel increasingly isolated and stressed, worried about the security of their jobs even as they log long shifts at home.

    But that is the collateral damage from a new workforce that could also save companies billions of dollars in operational costs; greatly reduce traffic and liability related to sick employees; and enhance productivity from a workforce that eats, sleeps and lives at its diffuse, de facto offices. Tech is uniquely positioned to take advantage of working conditions turned upside down and sideways because it has the technical resources to support a decentralized workforce, and a significant slice of its employees already worked remotely.

    In a free-wheeling “virtual dinner” this week attended by five software CEOs — McKinnon, Box Inc.’s US:BOX Aaron Levie, PagerDuty Inc.’s US:PD Jennifer Tejada, Twilio Inc.’s US:TWLO Jeff Lawson and Zuora Inc.’s US:ZUO Tien Tzuo — the topic elicited the most animated conversation.

    See also: Twitter employees can work from home as long as they wish

    “Twitter will cause a snowball of other organizations going forward,” said Levie, who has weaned on the management style of former Intel Corp. US:INTC CEO Andy Grove, who weaved through offices to get an up-close look at workers. “We may not go back to work the same way [at Box]. Things are faster, more action-oriented with remote workers. With videoconferencing, I can check in on customers in the U.S., Japan and Europe in one day.”

    “Our salespeople meet five to eight customers a day now [via videoconferencing] versus the one it took them three days [to see in the past] because of travel,” he added.

    A major reason for improved productivity is that people have had little else to do during the shelter-at-home directive and felt pressure to produce to retain their jobs, countered Shane Metcalf, chief culture officer at 15Five, an enterprise technology company.

    “One of the shadow side effects is that employees are working longer hours, and feel as if they’re always on call,” he said. “They are stressed.”

    See also: Cisco profit continues to flow amid pandemic despite revenue slowdown

    To be sure, not everyone will follow Twitter’s lead. Some, like Apple Inc. US:AAPL, Nvidia Corp. US:NVDA and Amazon.com Inc. US:AMZN, have devoted billions of dollars to sparkling new facilities that will always house thousands of employees. And some people want to return to an office, pointed out PagerDuty’s Tejada.

    Added Butterfield: “Some employees are going insane [because they] are cooped up alone in an apartment or have kids and want to go back to work. The majority want to be in the office.”

    “We don’t believe that ‘office-less globally’ is in our company’s best interest to build strong company culture or long-term productivity. Like most things in life, the best answer is typically something that moderates between two extremes,” Vonage Holdings Corp. US:VG CEO Alan Masarek told MarketWatch via email. None of the company’s 2,400 employees will be required to come back to the office “until they are comfortable doing so.”

    Record traffic usage of Zoom, Microsoft Corp.’s US:MSFT Teams, Slack Technologies Inc.’s US:WORK enterprise messaging, Cisco Systems Inc.’s US:CSCO Webex and other services underscores the always-on workplace.

    “Some elements of this work-from-home scenario will not go away,” Cisco CEO Chuck Robbins said during a conference call with analysts Wednesday following the company’s quarterly earnings announcement. For example, Webex hosted more than 20 billion meeting minutes in April, compared with 14 billion in March and 7 billion in February.

    “The pandemic has created a permanent shift in the way people are working, and while not every organization will go 100% work from home forever, there will certainly be more support for virtualized environments,” Masarek said.

    One company going all-in virtually is Dialpad because, quite simply, it can. CEO Craig Walker, who helped develop Google Voice technology, was leaning that way before the pandemic forced most of the economy to shut down. He wants the communications-software firm’s 400 employees to work from home four or five days a week, he said, and he plans to halve office space to accommodate a staggered work schedule.

    No matter what path companies take, they agree it will not be the same. Some employees will exclusively work from home, while others will opt for the office. And others may do both.

    “It’s back to a whole new way of work — like back to the future,” says Quick Base CEO Ed Jennings, who took over the $1 billion, 500-person company this week, but has yet to visit headquarters.

    Still, he’s already re-imagining what it will look like in the future — with more open space, partitions and collaboration spaces.

    “It is hard to create depth of relationship when you communicate strictly via virtual meeting,” Jennings said. “Employees say these days they get things done so much faster at home. The question is whether that is sustainable.”

    * BLUE, WHITE OR PINK NO MATTER THE COLOUR OF YOUR COLLAR WE ARE ALL PROLETARIANS NOW
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    Elon Musk and Ivanka Trump share a moment on Twitter — then the creator of ‘The Matrix’ claps back

    Published: May 17, 2020 at 11:25 p.m. ET

    Are we living in "The Matrix"...? Warner Bros/Everett

    ‘Take the red pill.’

    That’s Tesla TSLA, -0.51% boss Elon Musk delivering a cryptic message on Sunday to his 34.3 million Twitter TWTR, +1.54% followers — the latest in a long line of his social-media headscratchers.

    After Musk recently named his child ‘X Æ A-12,” nothing should come as a surprise anymore. But, really, what is he talking about this time?


    Well, for the uninitiated, the “red pill” is a reference to the science-fiction classic “The Matrix.”

    Without going too far down the nerdy rabbit hole, the film’s protagonist, played by Keanu Reeves, is given a choice: He can take the blue pill and return to his regular life, or he can choose the red pill and learn the whole truth about living in a computer simulation.

    Basically, blissful ignorance or hard truths.

    Over the years, the internet has put its spin on how the phrase can be used, and the “red pill” has come to mean very different things to different groups of people. As with just about everything these days, political lines have been drawn between the red and blue pills.

    Urban Dictionary captures the range of interpretations. The one Musk was probably going for says the red pill “opens someone’s eyes and mind to the secret truth of something important.”

    Then there’s the one Musk’s critics prefer: “A small fundamentalist internet subculture of angry, thirsty, mostly white, conservative males who blame all their romantic and social failures on women.”

    Either way, Musk got the endorsement of President Donald Trump’s daughter:

    From there, fans of both Elon Musk and Ivanka Trump celebrated their beloved red-pill takers, and the right-wing political awakening many assumed it to mean.

    But the woman behind referenced phrase, “The Matrix” co-creator Lilly Wachowski, wasn’t having it, and she showed up in their mentions to completely kill the vibe:

    As far as the red-pilling of Musk,    he has stolen headlines lately as an unlikely hero of the right, calling stay-at-home orders “fascist” and threatening to move Tesla out of California.  His protests have drawn the ire of critics, including one San Diego assemblywoman who hit him with an F-bomb after he said he was taking his headquarters to Texas or Nevada.
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