enoch cree nation secrets to successful benefits plans€¦ · insurance and pension plans for a...

3rd Annual CAHRMA National Conference Enoch Cree Nation

Secrets To Successful Benefits Plans

Presented by Clarke Financial Planning & Insurance Services

April 14 - 16, 2015

• Clarke Financial Planning and Insurance Services is the largest aboriginal benefits advisor firm in Canada. More than 3,200 employees are in plans that we advise.

• Clarke Financial Planning and Insurance Services is a professional firm headquartered in Winnipeg, Manitoba. Andrew Clarke is a Certified Financial Planner (CFP). The business is 100% First Nations owned and operated. Andrew Clarke is from the Norway House Cree Nation.

• The business has over 21 years of experience in designing and managing group insurance and pension plans for a variety of different aboriginal entities. Clarke Financial Planning and Insurance Services is an independent broker with the ability to deal with most insurance and pension companies. Companies like Sun Life, Great-West Life, Manulife, Blue Cross, ACE Insurance and SSQ Assurance

• The firm operates a toll-free customer call centre (1-800-558-2088) that is staffed with fully licensed service representatives. The call centre uses the latest Goldmine contact database management system for customer support and information.

• Andrew Clarke is a board member of the Manitoba Civil Service Superannuation Board ($6.5 billion in assets). He has previously served on the boards of numerous entities including the Aboriginal Chamber of Commerce (chair) plus he is the recipient of a number of awards including the 2012 Aboriginal Business Leadership Award from the Asper School of Business (University of Manitoba).

Clarke Financial Planning and Insurance Services

• Build a positive employer/employee relationship • To attract and retain employees • Be different from competitors • Manage employee absenteeism • Contribute to employee health and wellness • Address legislative requirements • Protect employees from large financial losses due to accident or

sicknesses that cause disability, death or other health related issues

• Form of compensation beyond salary and wages that can be provided in a tax advantaged way to employees

• Ensure that long serving employees have an adequate income when they retire from working

Why Have Benefits:

• How does your advisor get paid? • What are inducements and why do they increase costs? • How can changes be made to a plan without your knowledge? • How can group insurance premiums go up when the claims experience

goes down? • How can group insurance premiums decrease without decreasing benefits?

Control costs. • How to make the Non-Insured Health Benefit (NIHB) program a first payor. • Why generic brand drugs are just as good as brand name drugs. • Why did your pension regulator change from Federal (OSFI) to provincial? • What is the difference between gross and net rates of return? • At what asset levels should pension management fees reduce? • Tax Exempt Status - Pension. • CPP and OAS - Changes and Other.

Secrets of What Employers Need to Know:

• How does your advisor get paid?

• Advisors can be paid either on a fee or commission basis. Both of these

compensation methods can be negotiated depending upon how much work is involved in the set up, implementation and ongoing management of your plan. Generally speaking if a fee is charged then no commission is payable and vice-versa. Fees are usually billed out on an hourly rate and the scope of the work involved should be outlined in a formal contract. Advisor fees range from $100 hour to $300 hour and can be more depending upon on the advisor’s level of expertise. If your advisor is commission based then their remuneration is based on the premiums or contributions that your organization pays to the company that your plan is with. Commissions on group insurance plans can range from 3% (large plans - 50+ employees) to 10% (small plans - under 50 employees) and on pension plans commissions can range from 0% - 5% plus an ongoing trailer fee that ranges from 0.20% - 0.80%. Remember, the higher the advisor’s commission the higher the plan expenses are; Group insurance - less money to pay claims. A key plan number is the target loss ratio (TLR). The higher this number the more money there is to pay claims. Pension - higher investment management fees - lower rate of return.


• What are inducements and why do they increase costs?

• According to the dictionary an inducement is - An advantage or benefit that precipitates a particular action on the part of an individual. In the old days most provinces banned advisor inducements on the basis that such inducements could lead a client to make an inappropriate financial decision. Fast forward to today and inducements between advisors and clients are now permitted by most provinces. These inducements, however, are supposed to be of a nominal value. So, what does that mean? Well, if your advisor buys you a box of chocolates for Christmas that’s probably ok. But, if your advisor were to send you on a holiday to Las Vegas then there most likely is an issue. This issue can be tricky from several different perspectives: 1) Is it legal? 2) Is the inducement a ploy to gain your favour? 3) Does acceptance of the inducement cause resentment by other employees? 4) Is acceptance of the inducement contrary to your organization’s HR policies? 5) Remember, the advisor doesn’t really pay for cost of the inducement - they build the cost into the fee or commission that is charged to your organization - the employer and other employees are paying the cost of your trip. The more trips and freebies you get the higher the costs to your plans.


• How can changes be made to a plan without your knowledge?

• Most group insurance and pension plans are set up in the name of your organization or employer. This means that these entities control the plans and only instructions and directions from the authorized person(s) of these contract or policy holders are allowed to action plan amendments or changes. Under these types of plans advisors aren’t permitted to make their own amendments or changes. Now, where an advisor owns their own plan and your organization participates in such a plan the organization normally has no rights or privileges concerning amendments or changes to the plan - only the advisor is allowed to make any amendments or changes to the plan. So, if an advisor wants to change insurance or pension companies to get a higher commission they can and they don’t even have to tell you. They can also change the benefits under the plan and once again they don’t have to inform you or your organization as your organization is merely a participant in their plan. Under these types of group insurance plans your own claims experience isn’t even yours - it belongs to your advisor - good luck in trying to get that experience if you ever need it. Remember shopping around requires claim experience as other insurers want to see your past results. With no claims experience other insurers won’t quote.


• How can group insurance premiums go up when the claims experience goes down?

• Group insurance premiums can go up when the claims experience in your organization’s plan is going down due to increasing age demographics (employees age each year), higher benefit volumes (more coverage) at older ages, decreasing numbers of employees (risk is spread over fewer employees) and adverse factors experienced by the insurer such as a higher number of catastrophic claims (life and long term disability), lower profit margins and low interest rates.


• How can group insurance premiums decrease without decreasing benefits?

• One of the sure fire ways to reduce group insurance costs is to hire young healthy employees. There may be an legal issue with doing this so tread carefully in this direction. Another way to reduce premiums without reducing benefits is to introduce an Employee Assistance Program (EAP) - yes there is a cost associated with this but studies have shown that the payback from such a program can be as high as 3 dollars for every 1 dollar spent in reduced employee absenteeism, shorter disability durations and increased employee productivity. Benefits can also have per visit limits and increased levels of certification (like a doctor’s note to see a massage therapist) placed on them to decease and control costs. Finally, some benefits like minor dental services or drugs can be reengineered to cost less by changing the number of units of time that a dentist can use or by using generic drugs from low cost pharmacies such as Wal-Mart or Costco or Safeway. The cost of generic drugs can be a fraction of what brand name drugs cost. Drug dispensing fees which are built into the cost of drugs range from $5.00 at the places noted above to over $10.00 at pharmacies like Shoppers Drug Mart. Prescriptions can be also filled at Costco without a membership. Costco is a very inexpensive provider of prescription drugs.


• How to make the Non-Insured Health Benefit (NIHB) program a first payor.

• The NIHB program provides coverage for limited benefits and services to Status

Indians that aren’t available through other plans. In 1995 the program was changed from a frequency based program to a medical needs based system. This means that a person in a cubicle somewhere determines you or your child’s medical need for a benefit or service. In 2003 the program was changed once again to make it a payor of last resort. The two simplest ways to make the NIHB program a “first payor” is to re-configure your organization’s benefits around so that your plan doesn’t pay for benefits that the NIHB program pays for. On drugs this is really easy to do. By introducing an electronic drug card the card can be set up so that it carves out the drugs that the NIHB program pays for and only allows your plan to pay for drugs that the NIHB program doesn’t pay for. On other benefits like the minor dental benefit - it should be reduced to a 15% coinsurance amount. This forces the NIHB program to pay the majority of these claim costs so that they aren’t captured by your organization’s plan - which of course would lead to higher employee and employer costs. Over the past couple of years the program has expanded its use of limited use and prior approval drugs to cap costs - making it more difficult to access benefits.


• Why generic brand drugs are just as good as brand name drugs.

• Here in Canada we have one of the safest drug supply chains in the world. From

manufacture to regulatory regime to dispensing processes our system for drugs is second to none. Generic drugs are copies of brand name drugs and usually cost a lot less than brand name drugs. A generic drug can be produced once the patent protection expires on a brand name drug. Generic and brand name drugs have identical active ingredients and generic drugs must meet Health Canada standards for bioequivalence. Bioequivalence means that a generic drug will produce the same therapeutic effect as the brand name drug. In Canada generic drugs have to meet very stringent formulations rules and confidence levels before Health Canada will allow them for sale. Where generic drugs are allowed to be different is in the make up of their non-active ingredients, shape and color markings. On rare occasions some employees may have allergies or intolerances to non-active ingredients. In these situations group insurance plans allow these employees to use brand name drugs. So, generic drugs are safe and they can be an important cost controlling mechanism for a group insurance plan.


• Why has your pension regulator changed from Federal (OSFI) to provincial?

• In November 2010 two Supreme Court of Canada decisions determined that two

different aboriginal entities (child welfare agencies) were subject to provincial labour laws. These decisions caused the Office of the Superintendent of Financial Institutions (OSFI) to develop a legal opinion concerning all of the First Nation plans that were under their jurisdiction - maybe the plans didn’t have to be under their rules! What a great way to get out of doing work! So, without any notification, consultation or negotiations with First Nations, OSFI got together in secret, with all of the provincial pension regulators and decided that all of the Health and Education Authority pension plans that are resident on reserves would be transferred to provincial jurisdiction because the provinces had the “legal” authority to look after these plans. This mass transfer process finished last year. Over 300 plans have transferred to provincial jurisdiction. If your plan has transferred this process can be reversed. Please consult with your advisor as there are several ways to use the Indian Act to correct this attack on our ability to govern ourselves.


• What is the difference between gross and net rates of return?

• Within a pension plan the gross or total rate of return of an investment fund or other

investment (like a Guaranteed Investment Certificate (GIC)) is determined before deducting expenses like investment management fees, commissions or trailer fees. The gross or total rate of return is also measured over a specific period of time such as a calendar year. The net rate of return on an investment fund or other investment already has investment management fees, commissions and trailer fees deducted from it. The net rate of return is also determined over a specified period of time - calendar year. When an employee receives their semi-annual statement the rate of return that they see on their statement is usually the net rate of return. The higher investment management fees, commissions and trailer fees are the lower the net rate of return. It is very important that these expenses are kept as low as possible as the lower that they are the higher rate of return an employee will receive on their investment fund or other investment. A higher rate of return means an employee’s monies are making more money for their retirement.


• At what asset levels should pension investment management fees reduce?

• Most pension companies have pre-determined asset levels at which they will reduce

the investment management fees of the funds that they offer within an organization’s pension plan. Usually these levels start out at $500,000 then go to a $1,000,000 then to $2,500,000 and then up to $5,000,000. At $10,000,000 the increments go up by $10,000,000 all the way up to $50,000,000 and then jump directly to $100,000,000. If an organization has more than $100,000,000 in its pension plan the fees are completely negotiable. At the lower levels the investment management fees run at approximately 2.0%. This pays for the administration of the pension plan, pays the investment manager and any advisor commission and fees. At $5,000,000 the investment management reduces to approximately 1.5%. It’s a real good idea to pay attention to the asset levels of your pension plan just in case your advisor forgets to tell your pension provider that you deserve a lower fee due to higher assets in your organization’s pension plan. The reductions are not automatic.


• Tax Exempt Status – Pension.

• Status Indian employees derive their pension tax exemption from the Indian Act and as per the 1994 guidelines issued by the Canada Revenue Agency (CRA). • To maintain this tax exemption for a pension plan the majority of pension committee members should be Status Indians and regular meetings of the committee should be held on reserve. Committees are required for 50 or more pension members. • When new members join the pension plan the pension company who administers the pension plan, usually requests via the application form, their Indian Status number (usually 10 digits in length). As contributions flow into the pension company they are tracked using this number. • When a Status Indian member terminates or retires from their employment the employer signs off on a statement to the pension company verifying that all of the member’s contributions have been in respect of on reserve employment. • When a Status Indian member starts to receive pension income or a lump sum payment from the pension company they have to verify their Indian Status by supplying a copy of their card. The tax exempt reporting is done by special wording on the required T4RIF slip (counter filed with the CRA) - it shows “Indian Status” and “Tax Exempt” on the slip. Two companies do this: Great-West Life and Manulife Financial.


• CPP and OAS - Changes and Other.

• Many employees contribute to the Canada Pension Plan (CPP) • Contributions are 4.95% of yearly earnings up to $53,600 (minus the $3,500 exemption). The

employer matches these contributions. • Effective January 01, 2012 the CPP plan has changed for employees between the ages of 60 -

65. If you are working you must contribute to the plan even if you previously had stopped contributing and are now in receipt of a CPP pension income. Your pension income will increase.

• Also effective on January 01, 2012 if you are age 65 or older you have the ability to either stop contributing to the plan and potentially collect your CPP pension income (form required) or still contribute to the plan until age 70 and then collect your CPP pension income. Your pension income will increase.

• The new phase in rules decreasing the amount of CPP pension income between the ages of 60 - 65 (-7.2% vs -6.0% a year) and increasing the amount of CPP pension income after age 65 (8.4% vs 6.0% a year) have already started and will be totally phased in by 2016.

• CPP pension income is indexed to inflation. The maximum CPP pension income at age 65 is $1,065/month. The average Canadian retiree receives $610/month. For Indian Status members who earned their CPP on reserve - it is paid tax exempt.


• CPP and OAS - Changes and Other.

• New rules for collecting Old Age Security (OAS) have been implemented. The age to start collecting OAS is increasing from age 65 to 67. Starting in 2023 these changes are going to be phased in over a period of 6 years. If you are born in 1957 or prior the old rules apply to you. If you were born in 1958 or later the new rules apply to you. These rules will be fully in effect in 2029.

• OAS is paid by the federal government based on Canadian residency status. To qualify for the maximum OAS benefit a person has to be age 65 or older, a Canadian citizen and have resided in Canada for 40 years after turning age 18. Employment history is not a determining factor to receive this income benefit.

• Currently, the maximum OAS benefit is $563.74/month. This benefit is indexed to inflation. The benefit is also considered to be taxable income even for Status Indians. Certain tax credits can reduce or eliminate the taxes associated with this benefit. This benefit is partially clawed back starting at $71,592 (2014) of taxable income.

• The OAS program has 3 other benefits available: 1) Guaranteed Income Supplement (GIS) - means tested from the first dollar of taxable income. The GIS benefit can pay a maximum of $764.40/month (single). 2) Spousal allowance. 3) Allowance for the survivor. Items 2 & 3 are paid if certain criteria are meant - age is one of the criteria - you or your spouse is between the ages of 60 - 64.


Questions?

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