elcome to the first edition of eSignature, Penad’s  first elec-tronic version of our acclaimed  communications organ. We hope you enjoy our new and concise format, and that it continues to be a source of valued information and enjoyment. 

Needless to say these continue to be exciting times as we observe rapid changes in technology and the world around us. I cannot help but sit back with amusement at developments in the dot com world where overnight paper millionaires have been once again reduced to the rank and file. The trumpeting of the “new economy” stocks based on  new and in many cases unproven concepts and business models  has subsided. There is again a recognition that the proven fundamentals of  more traditional approaches (albeit modified to meet changing needs)  cannot be discarded and have a permanent  place of honor in the “new economy” as well. 

The beginning of the  new millenium provided   an exciting opportunity and inspiration for Penad to review our corporate direction and to re-evaluate our chosen  path which will  enable us to remain in the forefront of  pension solutions for both plan sponsors and  members as well. 

Substantial human and financial energies have been dedicated over the past several years  at Penad  in order to marry both proven method-ologies  with leading edge technologies which will serve to empower both pension administrators and members alike to effectively manage their pension affairs. We have strived to strike a careful balance between these  two elements in

order to provide pension solutions and systems which recognize the complexity of the new age of pension administration, one  which operates in an increasingly member centric environment.

Our initiatives have resulted in the successful development and   launch of PX3000, Penad’s new suite  of  Human Resource  software pro-ducts. PX3000 is yet again another first for Penad. It is the first system of its kind to fully integrate the Human Resource, Life and Health, and Pension administration function under one comprehensive solution. 

PX3000 combines the strong and proven functionality of our two legacy  pension systems (PX 2000 and Penad Partner) and incorporates leading edge technology and features that allow for the efficient administration and communication of pension and related benefits. 

The effective use of new technologies is central to the design of the system, and  supports the recognition that  the nature and demands of pension administration has evolved to a new standard. 

As we navigate down the path of innovation we will keep you abreast of any and  all develop-ments as they unfold. Stay tuned! 

For interested techno-types there is a short article in this issue highlighting  Penad’s new sponsor/ member communication link… PACC. Just recently implemented, this facility is already in use by many of our  clients both in Canada and abroad. This unique communications tool   pro-vides a new dimension to the concept of client/ member support in a live environment. 

As always to satisfy your quest for information we invite you to  follow  ongoing developments at Penad on the web at www.penad.ca. The site is full of interesting and valuable information  and will allow you to access PACC from anywhere in the world at no cost.

he province of Quebec is the latest to significantly revamp their Provincial Pension Legislation, the Supplemental Pension Plans Act. The applicable changes came into effect as of 01-January-2001.

In recent years we have continuously heard calls for uniformity & simplicity among all provincial pension administrators, focused under the banner of C.A.P.S.A. (Canadian Association of Pension Superintendents). What actually appears to be happening in fact is that various jurisdictions are moving in different directions… to the beat of their own drum or constituency. 

This culminated this year with Quebec’s new Bill 102, which was hailed by the Minister responsible as a move toward “Simplification” in a press release. The new approach to  “Simplification”  warrants further scrutiny and comment. 

Indeed a few of the changes can be considered as simplifications, but these are far outweighed by other additional changes that have been introduced.

The first major change which simplifies is the granting of 100% immediate vesting with effect from January 1^st, 2001. There is no longer any delay for 2 years of membership to accrue before vesting is granted. In addition a change which in the long run will simplify administration is the increasing of the cash commutation provisions to now allow terminating or retiring members the right to cashing out their benefits if the value of their pension is less than 20% of the maximum pensionable earnings under the Quebec Pension Plan.

The Plan Sponsor also has the right to enforce this payout without a request from the member. This will have the effect of reducing the number of members holding deferred pensions as well as those receiving monthly pensions from the Plan. 

Changes to the benefits payable to terminating members from pension plans have however gone completely in the other direction from “simplicity”.

First, defined benefit pension plans must now grant interest on employee contributions at a

“fund rate” of interest, as opposed to the current practice of an average of interest rates payable in 5 year personal savings rates. This means that rather than using a uniform rate for members within a Plan, Plans with members in Quebec must now accrue interest differently across the provinces. As well, administrators of many pension plans must now calculate different rates of return for each plan, rather than being able to use a uniform rate as in the past. 

The other significant change to the termination benefit is a much more complicated affair. A pension accrued after January 1^st, 2001 is now valued in a completely different way in Quebec than any other jurisdiction or the pension accrued prior to that date. This now requires a further partitioning of benefits within pension administration systems, since they must now also keep track of the pension in respect of post January 1, 2001, in addition to all the previous partitions.

Without getting too technical, the termination value must now  be calculated as at least equal to the value of a partially indexed pension, indexed to the date when a terminating member is 10 years prior to the Normal Retirement Date. In most plans, this will be to age 55. The pension must be indexed at 50% of CPI to a maximum of 2% per year. This now requires pension administrators and actuaries to value this pension accrued separately from the balance of the member’s pension and in a completely different commuted value calculation.

Members who have been in a pension plan since prior to the first Quebec Reform Legislation in 1990, now require 3 separate and distinct calculations to get a total pension value on termination. This drastically increases the cost of administration in addition to increasing the termination benefit payable from the Plan. 

We are very concerned that each Provincial jurisdiction is moving towards putting its own stamp on Pension Legislation rather than striving to reach some kind of universal Canadian  approach to regulating pensions.

It appears that much of the diversity coming out of the Provincial Legislators is driven by political agendas rather than a genuine desire to conform with other jurisdictions

We wish CAPSA the best of luck in its ongoing search for uniformity. We are however not very optimistic that their goal will be achieved  in the near future.

he idea behind the dramatic shift from Defined Benefit to Defined Contribution plans is a relatively simple one. 

Shifting the investment risk from the plan sponsor to the participant would be a win-win situation for everyone. The employer avoids an open ended liability for future benefits, the employee by accepting the investment risk gets to keep all returns to build and enhance their retirement income. 

Just one problem; it hasn’t worked… at least not as originally planned. So what went wrong? 

In Defined Benefit plans, the sponsor can hire consultants and managers to insure that the plan’s objectives are met. Pension Committees supervise the operation of the plan and fine tune it to meet those objectives on behalf of the employer. On the flipside, in a Defined Contribution plan, increasingly it is the individual employees who may be ill equipped and who are responsible for the same decision on an individual basis. 

Employers Fill The Vacuum

Employers have attempted to fill this vacuum by providing educational forums to promote the required concepts to their employees. In the classroom-type setting, emphasis is usually on financial, investment and technical concepts.  Typically there is no link connecting financial concepts to very personal retirement decisions or personal objectives. 

Retirement education is quickly emerging as a focus for all employer sponsored training.  The sole purpose of retirement education is to help the individual discover the connection between their lifestyle choices and the financial, investment and technical concepts explained by their employers. 

If people have clear goals and objectives based on a vision of what they want their lives to look like at retirement, it is far easier to make decisions, plan and invest. 

The challenge is to develop a future vision, understand the cost and to develop a sense of how an individual will prioritize current lifestyle considerations (including investment risk strategies) against future lifestyle choices. 

The purpose of the retirement education process is to develop a working model. It is through this working model, at the conclusion of the process that individuals either alone or with their financial planner make sound decisions regarding their finances.

Steps in the Process

Lifestyle modeling is accomplished through a simple, lifestyle oriented software package.

The process begins with homework.

Step 1

By addressing very personal questions like: 

• How do you like to spend your time?
• What do you really like to do?
• What will keep you motivated?
• How will your family be impacted by your retirement?

Individuals will build a framework from which to make decisions about what they want their future to look like. Once that framework has been developed, clear goals relating directly to the individual’s vision of his or her future can be established. 

Step 2 Reasonability check

Is the relationship between the financial and non-financial goals reasonable? Part of this process involves educating employees about their pension plan. This exercise shows employees that they likely require a second pot of money to cover other special life events.  It becomes apparent that the pension plan alone is not likely to support 100% of their retirement goals.  This is a practical demonstration of the shared employer/employee responsible income for retirement. 

Non-financial goals require careful and complete articulation. Consider the couple who years ago agreed that when they retired wanted to spend “some time” in Florida every year.  Each was very comfortable with this decision until the time came to plan their first trip.  At that point the female spouse realized the male meant six months.  The male in turn realized that his spouse meant only two weeks at a time. The issue was eventually resolved. However, had the non-financial goals been checked when the original decision was made the incident would not have arisen. 

Approximate Cost of Lifestyle

Financial goals, including investment, need to be modeled against the approximate cost of the lifestyle vision of the individual.  This stage of the process helps determine if there is a fit between the financial ability of the individuals to support that lifestyle. 

The importance of modeling typically identifies that the pension plan alone will not provide the required finances to completely fund retirement.  A compromise or balance must be struck between the vision required and the financial ability to support the vision.  Properly done, a clear model for life pre and post retirement is established which incorporates realistic goals and objectives and the appropriate level of financing. 

Step 3 Financial Planner

At this point participants are ready to see a financial planner in order to get into the nuts and bolts of a detailed financial plan.  Employee education provides a solid foundation of having an understanding and strategy with which to move forward in an intelligent fashion. 

Employee participants enjoy a process that is personal, meaningful, and relevant. 

Visit Av Lieberman's site at www.iretire.org

he need to incorporate technology  into the pension administration and commu-nication process is certainly not a new concept. 

The timeline of the introduction and evolution of client/sponsor communication tools has not been very long indeed. It wasn’t long ago that the “leading edge” and highly demanded communication tool between the plan sponsor and administrator was the “old and dependable” touch tone phone where members would punch in their choices and await a mechanical response indicating their account balance, asset mix or other minimal information. By today’s standards this is akin to the first mobile cellular phones which weighed several pounds and who’s power source was actually bigger than the phone itself! 

Most individuals would typically end up  pressing “0” to speak to the  plan administrator familiar with their pension plan as the questions  proved typically to be more in depth than the ability of the voice response to reply. Therefore  the effectiveness of this tool was minimized…. 

Fast forward …date line 2001. The tools for communication available today are proving to be much more effective and efficient. These incorporate both the use of the Internet and Call Centers into the equation. Each have their limitations of course. The one common drawback is that the ability to access your plan administrator directly is limited, instead one is  typically routed to a call center intermediary. This limitation is more pronounced in the administration of DB plans.  

Being in the forefront of the technology department, Penad has introduced a new and fully secure technological innovation known as PACC (Penad Administration Communication Center) that allows for plan members and sponsors to directly link up with their specific plan administrator using their  internet browser.

 Via a combination of voice, video, and /or word chat, plan sponsors and individuals are able to obtain a direct and immediate response to their pension questions. 

This unique facility allows individuals to directly correspond and actually view the documentation  being worked  on or queried simultaneously with their plan administrator and to make and verify changes immediately. In fact they can see their administrator as well.

Let’s take a fairly common example: A plan participant wishes to verify and change his/her beneficiary.

 He/she simply goes to Penad’s web site and clicks  on the connect Penad button and selects the administrator of his/her choice from the menu. The individual begins communicating using the desired medium. Once the security verification checks  are completed, Penad’s  plan administrator  pulls up the screen showing the  beneficiary designation form and flashes it onto the screen for discussion. The ability to collaborate, view, and verify the desired changes instantaneously, eliminates any possibility of errors through miscommunication  or misunderstanding. The changes made are effective immediately as the plan administrator  actually makes them directly on the pension system. The use of the internet  enables the plan sponsor or member to call from virtually anywhere in the world and make the desired change or obtain information. 

This is but a simple example. The potential application for this proprietary technology are limitless. In situations where for example a systems  client requires technical or training assistance can once again have this done and resolved on the internet  immediately in a highly efficient secure and cost effective manner. 

The technology supporting PAAC  is exclusive to Penad and establishes a new standard for client/member support. This is  especially true in the pension outsourcing area. Currently we are  exploring other effective uses such as special member meetings, news conferences and legislative updates, which can be of benefit to our clients and we will be communicating them as they unfold.