CPBI Keynote: The Great ReWrite

The following notes were taken at a Keynote Session at Forum 2017, the annual convention of CPBI (Canadian Pension and Benefits Institute) with the theme: “Thriving In a Climate of Change”.

Speaker: Leonard Brody
Mr. Brody is an entrepreneur and business visionary involved with tech start-ups and concert promotion.

Key Points
We are rewriting the planet from the ground up. Every human activity and endeavour is being assessed, evaluated, and transformed. Even the new pope is rewriting a 1,700 year old institution, the Catholic Church.

We live in a time of unprecedented change, as we see institutions, governments, financial systems, and power structures melting down around us. As an example, for the first time in history, a single individual can now reach millions or even billions of people instantly via online technologies, without any form of mediation.

We have gone from being receivers of media to being nodes of media, and in doing so, we have each bifurcated into two separate identities, physical and virtual.

Amazingly, people are 4X more trusting of someone’s virtual identity than their actual physical self. To amplify this, 66 percent of marriages originate online, on a medium that didn’t even exist 25 years ago. And more amazingly, these marriages are 20 percent more successful than marriages that originate the old-fashioned way (eg bar, work, gym, blind date).

In this world of change, it is now possible to finance new ideas from a crowd rather than crossing a moat into the realm of venture capitalists.

There is a rising “entrepreneurial class”. People say they desire control, but in reality many are starting their own business out of necessity rather than accepting low paying jobs.

A suggestion for business people is to engage in “parallelism”, where you build a new business alongside your current business with the goal of destroying your current business and replacing it with the new one. Invest 10-25 percent of your time and resources into the parallel venture with the goal of bringing in at least 10 percent of your revenue from new products every year.


Leonard Brody









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NAFTA By The (Surprising) Numbers

The US has made their intention known to re-open NAFTA. These discussions will unfold over the next few months, so it will be helpful to understand some of the numbers behind the deal.

The following article (click the link below) gives a clear overview of the overall balance of trade and some of the other key issues to keep in mind. The entire topic has become highly politicized in the US, but the surprising reality is that, according to the numbers, this is not a bad deal for the US. In fact, the US might be getting more out of the deal than their northern neighbor.


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Has Disaster Been Averted in Cdn Mortgage Market?

Home Capital Group Inc. seems to have dodged a bullet that many feared could be the first crack in the Canadian mortgage and real estate market, which has been described as a bubble ready to burst.

Home Capital announced today that it has secured a commitment from a lender to provide them with a $2 billion line of credit in the face of a dangerous decline in deposits at their banking subsidiary, Home Trust. The deposits at Home Trust are a source of capital for mortgages, a primary business, so any drop in deposits limits their ability to lend to home buyers.

Shares of Home Capital dropped nearly 65% on Wednesday as depositers bolted in something of a run on the bank this week, with deposits declining from $1.4 billion down to just $814 million.

Bloomberg reports that the lender behind the line of credit is the Healthcare of Ontario Pension Plan (HOOPP), whose CEO sits on Home Capital’s board and is a shareholder. While Home Capital did not confirm the identity of the lender, they did advise that the terms of the loan will cause them to miss their financial targets. According to DBRS Ltd., the $2 billion loan has an initial interest rate of 10% and a $100 million setup fee.

News of the line of credit caused shares to rally and close at $8.02 on Thursday, up 33% from Wednesday but still down significantly from the $17.09 trading price on Tuesday.

Home Trust is known as an “alternative mortgage” provider, which means they provide mortgages at higher interest rates to borrowers with poor credit, and in fact they are Canada’s largest provider of such mortgages. Their current travails have caused other alternative mortgage providers in Canada to be downgraded on Thursday. For example, Jaeme Gloyn, an analyst at National Bank of Canada Financial Markets, issued the following note to clients on Thursday: “The combination of rapid deposit redemptions and the now elevated cost to replace said deposits has caused us to change how we view the world of alternative mortgage lending. As a result, we are downgrading Equitable Group to Underperform from Outperform and Street Capital Group to Sector Perform from Outperform.”

Shares of Equitable Group and Street Capital Group and other lenders were off over the past two days.

To compound the challenges facing Home Capital, they hold roughly $13 billion in fixed GIC deposits. As they mature at the rate of approximately $600 million per month, there is risk that they will not be able to replace these deposits, which could further undermine their ability to provide mortgages.

Home Capital also indicated on Thursday that the group is exploring “strategic options”, which is commonly used code for exploring the sale of the company.

How these events will impact Canadian real estate markets remains to be seen, but it is logical that the market will probably cool if fewer people have access to mortgages.



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Do Pension Funds Warp Ag Real Estate Values?

Reuters is reporting that, according to their sources, the CPP Investment Board (CPPIB) has started to get out of investments in farmland both within Canada and internationally.

The problem, it appears, began in Saskatchewan. The CPPIB bought over 100,000 acres in the province and was looking to buy more. This didn’t sit well with local farmers, who felt that the Canadian government, via the CPP, should not be in the business of speculating on farmland and driving up prices. The provincial government pushed back and actually banned sales of farmland to some institutional investors. The CPPIB reviewed their plans and decided to start getting out of farmland speculation not just in Canada but worldwide, where they were in the process of building up a sizable portfolio.

Pension funds and sovereign wealth funds around the world, representing over $2 Trillion dollars of investment capital, naturally see farmland and agricultural related industries as a relatively safe harbor for investments due to the projected need for humans to continue eating food in the future. The CPPIB will continue to invest in agri-business, such as their $2.5 billion investment in Glencore Plc in 2016. Other national pension schemes are reportedly still investing in farmland, but they can count CPPIB out of the game.

Whether this move will lower prices of farmland in Saskatchewan remains to be seen.


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Penad Announces New President

News Release *** FOR IMMEDIATE RELEASE ***
Kitchener, Ontario, Canada – March 21, 2017 – Penad Pension Services Limited today announced that both Frank Price, company founder, CEO, and Chairman, and Louise Price, company President and Director, are stepping down from day-to-day activities to begin a well-deserved retirement.

Stepping up to commence ongoing leadership is Matthew Price, who assumes his new position as President and Director. Matthew has been serving in the role of VP – Global Sales, Marketing, and Business Development since 2009. Prior to that, Matthew worked for Manulife Financial and Scotiabank.

“Now in its 34th year, Penad has been a labour of love from day one,” said Frank Price. “As an insurance company executive in the early 1980’s, I saw an opportunity to launch a new company to radically streamline the pension administration process. We programmed the very earliest IBM PC computers to automate pension administration from beginning to end. The result was that hundreds of pension plan sponsors handed us their third-party administration business, and we never looked back. Soon after, we got into the software game, as larger benefit plan sponsors preferred to lease our software for their in-house administration departments.

“And as they say, ‘The rest is history’. One day I plan to write a book about all the crazy and wonderful things we have seen. There have been over a million miles travelled by our various teams. I have personally spent time in over 100 airports. Over the years, we have had venture operations in Bermuda (Penad Bermuda) and Curacao (Penad Caribbean). Today we have clients in Canada and eight other countries. Penad has representatives in the Caribbean and in the GCC region. We have also done business in Europe, Africa, the Middle East, South America, and Asia. I guess you can see how proud I am of ALL our accomplishments. Quite spectacular for our team in little Kitchener, Ontario.

“That said, it has become abundantly clear that we need new energy and new leadership to meet the many challenges facing us in the coming years. It is with great confidence that I hand off the reins to my son, Matthew F. Price. I’m confident that Matt will do an excellent job as Penad’s President. He has the vision, energy, deep technical knowledge and corporate skills to take the helm and guide Penad to further growth, sustainability and success.

“Now Louise and I are putting 7-day workweeks in the rear-view mirror and getting up to speed to fully enjoy our extracurricular interests. Louise often says that if she had to do it all over again, she would have loved to pursue a career in the international wine industry. She has built up an extensive collection of rare wines and has the expertise of a professional sommelier, so now she is looking to build on this passion and who knows where this will take her. As for me, I would be more than happy if we ended up with a pied-à-terre in Paris or a cottage in Normandy (where we have been spending a lot of time of late). Louise could get me a job picking grapes in the autumn, and when not working in the fields, I will surely be indulging my interests in art, music, and writing. If you see a happy old couple touring around the backroads of Europe in a convertible classic MG, silk scarves flying in the wind, stop and say hello – that might just be us!”

Upon assuming his new role as President, Matthew Price issued the following statement:

“I am truly excited about the days ahead. Frank and Louise built Penad into a firm that is known for its technical excellence and devotion to client service. The company has served many hundreds of thousands of pension and benefit plan members over the years, and I believe our best days are ahead of us.

“Penad’s core management and engineering team has both the youthful energy and deep benefits experience to continue to build out our product offerings and open new market opportunities. Penad now earns over 80% of its revenue from software sales and related services, and we are currently working with clients to fill market gaps where benefit plan sponsors and administrators are looking to replace legacy systems held together with proverbial band-aids and binder twine. Our job in 2017 and beyond is to help benefit plan sponsors transition to proven technology systems and thereby better meet the needs of their respective stakeholders. We have the system products, engineering staff, and customer service people in place to make this happen and grow the firm in entirely new ways in the years to come.”

Penad Pension Services Limited was founded in 1983 with the mission to help pension and benefit plan sponsors streamline administration, reduce costs, and improve plan member communications while also reducing administration turnaround times. Today, the Company continues to serve pension and benefit plan sponsors across Canada and internationally with BPO services, consulting and administration software systems. Penad’s client-base includes Fortune 500 companies as well as unions, third-party administrators, multi-employer organizations, associations, banks, insurance companies, and government organizations.
– # # # –
Contact: Mr. Matthew Price, President
Penad Pension Services Limited
194 Weber Street East,
Kitchener, Ontario, N2H 1E4, Canada
Telephone: (519) 743-9000, Ext. 224


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80 Million People in Caribbean and Latin America at Risk of Poverty in Old Age if Pension Changes Not Made

Angel Gurria of the OECD launched the first edition of “Pensions at a Glance: Latin America and the Caribbean” at the Inter-American Development Bank (IDB) in Washington DC. The Pensions at a Glance report provides detailed comparative indicators of pension structures in 26 countries.

One key finding is that 63 to 83 million people in the region will be at risk of living in poverty by 2050 due to inadequate savings and pensions, as a result of only 45 per cent of workers contributing to any kind of retirement plan.

IDB president Luis Alberto Moreno, speaking at the April 20, 2016 meeting, said that governments in the region must act now to take advantage of “a demographic dividend that cannot be missed. If we get more people to contribute to our pension systems, and if we adjust the systems to rising life expectancy, we will be able to provide adequate coverage to future generations.”

One key finding of Pensions At a Glance is that today there are eight people of working age for every person in retirement, but that rate will drop to 2.5 to 1 by 2050, which underlines the need for governments to act now to ensure that workers are steered into adequate schemes while there is still time.


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Solvency Information Return

Has your pension plan submitted its Solvency Information Return to OSFI in Canada? This is required for all defined benefit or combination-type pension plans in Canada registered under the Pension Benefits Standards Act, 1985.

This filing provides OSFI with information on contribution holidays and annual rates of return and is used by OSFI to calculate the Estimated Solvency Ratio and to monitor contribution holidays.

The filing, OSFI 575, is due on the later of 45 days after the plan year-end or on February 15.

Please contact a Penad pension administrator if you have any questions about this filing.


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Disclosure, Not Prescription: ESG Comes to Ontario DB Plans

As of January 1, 2016, all occupational defined benefit pension plans in Ontario are required to disclose any environmental, social and governance (ESG) factors that are incorporated in the pension fund’s investment policies and procedures.

This requirement is a first for Canada and was approved by the Ontario legislature in late 2014, after first being proposed in 2011. The UK, Germany, Sweden, France and Belgium also have similar regulations.

The amendment to the Ontario Pension & Benefits Act is supported by Ontario’s largest pension funds including the Ontario Teacher’s Pension Plan and OMERS, both of which have actively disclosed ESG since the 2000’s.

This new regulation is not prescriptive and does not require pension plans to adopt or promote any special ESG policies, but we expect that pension trustees will consider ESG investments more closely as a result of this requirement, as has happened in other jurisdictions. Several other provinces in Canada including BC, Alberta and Nova Scotia are considering following suit.


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Has Your Pension Plan Filed U.S. Form W-8BEN-E?

That’s right, there is now another filing for Canadian pension plan sponsors, this time having to do with American tax rules.

American citizens, unlike citizens of most other countries, are required to pay taxes on all income worldwide, regardless of where it is earned and regardless of where the citizen was living at the time. To track and enforce compliance, Uncle Sam passed the Foreign Account Tax Compliance Act (FATCA) as of July 1, 2014, which requires financial institutions worldwide to report on investment income credited to any of their clients who are US citizens.

As an aside, many financial institutions in Europe and elsewhere find this requirement so onerous that they have actually closed the accounts of US customers. Fortunately, registered pension plans in Canada are exempt from the requirement, but they are NOT exempt from filing exemption forms with EACH financial institution holding pension fund assets, where that institution is itself a “foreign financial institution” under FATCA.

Pension plan administrators must file Form W-8BEN-E with each such financial institution, including financial institutions located outside of Canada (such as investment managers based in France, for example). In addition, if any of the filing information changes, the plan administrator must notify all financial institutions where it has filed Form W-8BEN-E of any such changes within 30 days.

Because the pension plan administrator is certifying required information, we strongly advise that pension plan sponsors confer with their counsel to ensure they have met the requirements of FATCA. Contact Penad for more information on how to ensure you are in compliance with this requirement.


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US State Pension Shortfalls Get Worse

A new report from the PEW Charitable Trust shows that funding for public sector retirement plans in states across the US is getting worse, a situation which has been compounded by weak investment returns in 2015.

New Jersey, for example, has only set aside 38% of what it needs to meet its pension commitments. Because public sector workers’ plans are guaranteed by state constitutions, this means taxpayers will be on the hook for any future shortfalls. At current levels in New Jersey, this works out to USD $10,648 per person. Only two states in the union, South Dakota and Wisconsin, are in surplus positions. The other 48 states have a combined shortfall of approximately $1 trillion.

Compounding the problem is the fact that many states have also made commitments to cover retiree healthcare needs. These healthcare and other post retirement benefits get even lower funding priority than the retirement plans, generally, and unlike the retirement plans, post retirement benefits are not guaranteed by state constitutions. This means that pensioners could be left without coverage if states decide to rewrite the rules when they can no longer afford to pay the benefits.


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