Canadian Lawyer InHouse

23 CANADiANLAWyERMAG.CoM/iNhousE april 2014 ing" that has more to do with the design of the plan itself, there are other ways to de-risk. One is risk management, where organiza- tions look at investment strategies that bet- ter match liabilities. "If we ever get to the happy days of interest rates going up, we'd see more movement there," says Forgie. We're seeing more thought going into the development of investment policy, and lawyers may get more involved in looking at policies and working with actuaries to de- velop those. Another area is risk transfer strategies, dealing with longevity risk through options such as buy-in annuities. We're seeing vari- ations on that being developed in Canada, though it's not as developed as other coun- tries, such as the U.K. This involves transferring pension risk to private insurance companies, so you would take assets from the pension fund and pur- chase group annuities (there's also the op- tion of longevity swaps with a fi nancial in- stitution instead of an insurance company). A buy in transfers the pension liability funding risk to an insurer, but the respon- sibility for administering the benefi ts re- mains with the employer. A buyout also transfers risk to an insurer, but the sponsor may be responsible if the insurer defaults on annuity payments. "The real problem with these savings arrangements is the cost of them," says Bauslaugh. "A one-per-cent management expense ratio over 40 years will eat up about one-third of your savings." Some larger clients have a DC plan through an insurance company, and have managed to lower those management ex- pense ratios. But, that begs the question, is that really pension reform? "We've already got group RRSPs that can replicate what PRPPs do," says Bauslaugh. No matter which de-risking strategy is taken, pension reform will likely drive legal work for in-house counsel. "We're going to see a lot of contracts being reviewed with respect to a number of issues," said Bush. This could be anything from regulatory compliance to longevity hedges to annuity buy ins. And there's much to consider: If the or- ganization has had a defi ned benefi t plan for the past 50 years, one issue is whether that can be converted into a target benefi t plan or if the organization has to run two sepa- rate pension plans. "If I stop a plan now, I have to run that plan until the last retiree dies," says Bush. "So it's hopeful the govern- ment says 'this is how you convert.'" Canada's unionization has also decreased. With a shared-risk model in the private sec- tor, one issue to consider is the mechanics of picking representation from a non-union- ized workforce. (N.B.'s shared-risk model was developed hand-in-hand with unions.) Pensions used to be the domain of hu- man resources or fi nance. Increasingly, in- house counsel are being brought in, says Bauslaugh, and in some cases organizations are hiring in-house counsel that have some pension knowledge, particularly where pen- sion obligations exceed the value of the en- terprise. "In-house counsel shouldn't shy away from this," says Bauslaugh. "They have a lot of value they can add to the management of the pension plan." IH NOT TOO BIG. NOT TOO SMALL. We are a full-service business law rm that combines Bay Street experience with leadership, teamwork and value. Thanks to our clients, our referral sources and our people, we have grown into a rm that appreciates your unique challenges, has a right-sized approach to service and can build a team that's… JUST RIGHT If this sounds like the right t for you, you've discovered Right-sized Thinking TM . Business Law • Commercial Litigation • Commercial Real Estate Construction • Insolvency & Corporate Restructuring Employment & Labour • Wills, Estates & Trusts ntitled-3 1 14-03-05 2:22 PM

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