Calgary and the rest of Alberta continue to struggle through the worst economic downturn to hit the region in decades. In August the unemployment rate in Calgary hit 9% as oil prices continue to hover below $50 per barrel.  Despite last week’s announcement by OPEC to cut production, there are still very few signs that Alberta’s economy is poised for a solid recovery.  While the region’s energy industry has been hardest hit from this economic fallout, virtually no sector of the economy has been left untouched.

To find out what impact the downturn has been having on pension and benefits programs we asked three local experts to share their thoughts with a sold-out CPBI audience on September 22nd.  Below are some highlights from each speaker:

Melanie Jeannotte, Area President, Gallagher Benefits

Melanie says this has been the perfect storm.  At a time when many employers can least afford it, per capita benefit plan costs have escalated due to a combination of reduced insured volume, increased dental utilization, increased drug costs and increased disability.

She says employers are in survival mode and are looking for a silver bullet, i.e., they want the same benefits with the same value at the same price, but unfortunately there is no silver bullet that can solve this problem.

Melanie suggest that plan sponsors undertake a forensic plan review starting by revisiting their benefits plan philosophy in light of these new economic conditions.  Other areas plan sponsors should put under the microscope are plan utilization, competitive benchmarking, demographics and pricing.  Plan sponsors may also want to seek employee input in determining the best course of action for moving forward with future plans.

Charlie Allegro, Senior Consultant, Willis Towers Watson

Charlie shared some pension and group retirement savings trend statistics from the Willis Towers Watson Benefits Data Source databank, which represents approximately 570 participating organizations across 29 industry segments in Canada.

He says that for Canada as a whole, Defined Contribution (DC) type pension plans outnumber Defined Benefit (DB) type plans by a ratio of 3:1; and says that DB plan penetration is still greatest among public sector plans. In Alberta the prevalence of DB plans decreased from 24% in 2011 to 21% in 2015, while the prevalence of DC plans increased during the same period from 47% to 50%.

Charlie says there has been a slight increase in the median employee contribution level among DC and Savings Plans combined, which has increased from 5% in 2011 to 6% in 2015.   

Aside from the trend of organizations moving away from DB plans, which has been in play long before this recent economic downturn in Alberta, Charlie says he’s not seen many clients make changes to their pension and retirement plans, although many are contemplating changes. So what can plan sponsors do to reduce pension and retirement savings plan costs? Charlie says reducing employer contributions and increasing employee contributions are two obvious ones. While the mechanics of such changes are relatively simple, they may not be popular among employees who have been asked to do a lot more with less.

Roland Guerette, Health & Benefits Business Leader, Mercer

Roland brought an interesting perspective to the discussion having recently moved to Calgary from the U.S. Roland said he sees many similarities between this downturn and the 2008 financial meltdown in the U.S. The first tactic employers took in dealing with the new economic reality was to reduce headcount. The next was to freeze or cut elements of compensation.  Roland said during the U.S. downturn, employers didn’t start pulling the trigger on benefits program reductions until about two to three years into the downturn.

These results appear to be consistent with the Mercer Total Compensation Survey for the Energy Sector, which includes about 200 companies representing all elements of the Alberta energy sector.  Since 2014 approximately 65% of survey participants have frozen wages and 30% have made changes or reductions to their compensation programs.  However, only about 1 in 6 has made changes to their health and welfare or retirement benefits programs.

Based on Roland’s U.S. experience, one could speculate that many employers will start making reductions to their health and welfare or retirement benefits programs within the next year or two should the Alberta recession continue this long.

He says plan sponsors should have a multi-year strategy with defined measurable objectives and targets.  They should also be asking some key questions such as:

•          Are we covering the right benefits?
•          What do employee’s value?
•          What do we provide that we always have but may no longer be relevant or valued?
•          Do you have the right vendors?
•          Are plan members getting the right care at the right price at the right time?

Roland says there are things that are within our control and some outside our control and we need to focus on the things we can control. I think that’s pretty solid advice.

-          Kenneth MacDonald