No. Unless specifically dictated by a Collective Bargaining Agreement, employers are not required to provide group benefits to their employees.

Employers often consider adding a group benefit plan as an employee attraction and retention measure. Group benefit arrangements should align with the employer's philosophy with respect to catastrophic health & income protection for their employees. Additional reasons that employers may consider a group benefit plan include: the availability of benefits that cannot be purchased individually; the cost effective nature of group benefits relative to individual benefits; and the fact that group benefits are usually provided to all employees without requirement for evidence of good health. Finally, group benefit plans offer a tax effective method of rewarding employees.

Group benefit plans in Canada are generally designed to wrap around or augment coverage provided by the various provinces. Benefits typically included in a group benefit plan include but are not limited to the following:

• Life Insurance
• Accidental Death & Dismemberment
• Short & Long Term Disability
• Supplementary Health including; major medical, drug, vision, hospital and out of country coverage
• Dental
• Employee Assistance Program

The most effective way to keep group benefit costs under control is to actively manage your group benefit plan. Some of the plan features that should be reviewed with respect to containing costs include:

• Employee eligibility requirements
• Premium cost sharing arrangements
• Plan deductibles
• Coinsurance
• Employee communication & education
• Administrative practices
• Defining employer contribution to the plan

Employers often respond to premium rate increases by asking their broker or consultant to take their group benefit plan to market. Recently the insurance industry has undergone a period of consolidation so cheaper rates are not always available by simply changing insurers. In addition, employers should be aware that insurers may offer discounts to attract your business, however, these discounts will be recovered at the next renewal. Together with the soft costs of changing insurance carriers, this can result in negligible savings over the long run. Notwithstanding the above considerations, there are a few viable reasons for marketing your group benefit plan including: poor service from your current insurer; changes in your employee population such as mergers & acquisitions; due diligence in ensuring that the current insurer is providing the most competitive, financially sustainable rates; and a true price impasse where rates are not deemed to be competitive by your consultant/broker and the insurer is unwilling to negotiate.

Flexible benefit arrangements can take many forms ranging from a simple Health Care Spending Account to a full cafeteria style flex plan. Although the number of options available to an employer with less than 100 employees is limited, there are tried and true methods of adding flexibility to smaller group benefit plans. Adding flexibility to your group insurance plan does tend to increase the employer burden with respect to administration and employee education so this should be offset against the perceived benefits of increasing employee flexibility.

The four main types of funding arrangements used within group insurance plans are:

• pooled or fully insured,
• retention or refund accounting,
• administrative services only (ASO), and
• self insurance.

The selection of an appropriate funding method depends on several factors including:

• the employer's risk tolerance,
• the size of the plan,
• the type of benefit,
• the insurer's willingness to offer the arrangement, and
• the current regulatory environment.

All factors should be evaluated before making a change to the existing funding arrangement.

Group benefit brokers/consultants are generally compensated on a fee for service or commission basis. For smaller group benefit plans commissions are the predominant form of compensation. Employers should be aware that Canadian Life and Health Insurance Association (CLHIA) requires brokers/consultants to disclose the following information to all clients.

• Company(ies) with which the broker/consultant places or recommends business.
• Company(ies) the broker/consultant represents and the nature of his/her relationship with those companies
• How the broker/consultant is compensated
• Whether the broker/consultant is eligible for additional compensation based on factors such as volume of business
• Conflicts of interest

In Ontario legislation eliminating Mandatory Retirement at age 65 became effective on December 12, 2006. Many employers are still confused as to whether or not they are required to provide group benefit to employees over age 65. There is no legislation requiring employers to continue providing benefits to these employees.

We do recommend, however that employers clearly communicate their intent with respect to the provision of group benefits for employees over the age of 65. In addition, should an employer wish to attract and retain older workers, providing group benefits may assist in this endeavour.

Insurers will generally extend benefits for employees over the age of 65 with the possible exception of Long Term Disability coverage. Employers currently receiving a reduction to their Employment Insurance (EI) premium rate should also be aware that Short Term Disability benefits must be extended to post 65 employees in order to maintain the EI premium rate reduction.

Finally, employers should ensure that their drug plan is second payer to the Ontario Drug Benefit for employees over the age of 65.

Many employers are reviewing their philosophy with respect to group benefits and setting objectives designed to meet their target requirements. In many cases this results in a plan review which can include:

• benchmarking against competitors,
• employee focus groups,
• the implementation of cost containment features,
• a review of wellness initiatives, and
• a review of funding and risk management strategies.

Employers are also paying closer attention to plan governance and disability management for both short and long term absences.

No. Unless specifically dictated by a Collective Bargaining Agreement, employers are not required to provide a pension plan or retirement savings plan to their employees.

There are two major categories of pension/retirement savings plans sponsored by employers for their employees – Defined Benefit and Defined Contribution.

In a Defined Benefit type of pension/retirement savings plan, the plan design defines the pension benefit to be delivered by the plan to the participating employee and is typically based on a percentage of an employee's earnings for each year of participation in the plan. Defined Benefit plans are common in the public sector and with unionized employees in the private sector but have become less common in the private sector in non-unionized environments. While Defined Benefit plans have a number of advantages, particularly for participating employees, the main distinguishing characteristic of these plans is that the employer accepts the investment and longevity risks. While participating employees of a Defined Benefit plan often share some of the cost of the plan by being required to make contributions, it is the employer who is responsible for contributing whatever amounts are necessary, above employees' contributions, to fund the plan based on the advice of the plan's actuary.

In a Defined Contribution type of pension/retirement savings plan, the plan design defines the contribution to be made to the plan by the employer and, in most cases, the employee. The contribution amount is typically expressed as a percentage of the employee's earnings. Defined Contribution plans include Money Purchase Pension Plans, Group Registered Retirement Savings Plans and Deferred Profit Sharing Plans. Defined Contribution plans are common in the private sector especially among small to mid-sized companies and those that are not unionized. The main distinguishing characteristic of a Defined Contribution plan is that the employee is exposed to both the investment and longevity risks. The employee's ultimate retirement income generated by a Defined Contribution plan depends on the amount of contributions made, the length of time such contributions are made, the investment return earned by the employee on his/her Defined Contribution account and in many cases, the annuity purchase rates in effect at retirement.

The cost of a pension/retirement savings plan depends on the design of the plan itself. For a Defined Benefit type of plan the cost is determined by an actuary and depends on a complex array of factors. However, generally speaking the more generous the benefits provided by a Defined Benefit type of plan, the more costly the plan will be to the employer.

With a Defined Contribution type of plan, the cost is determined by the employer's contribution rate as set out in the plan design. With this type of plan the employer's contribution rate is fixed or defined. The higher the employer contribution rate, the higher the retirement income an employee can expect to receive from the plan.

All types of plans also have varying levels of costs for plan administration and governance.

There are two main sources of government retirement pensions, the Canada Pension Plan (“CPP”) and Old Age Security (“OAS”). These two programs are considered an integral part of an employee's plan for providing for income security in their retirement years, in addition to an employee's personal savings and pensions earned under employer sponsored plans. Government pension benefits are regarded as a “floor” level of benefits and are not expected, by themselves, to provide retirement income security for employees.

The CPP is a compulsory program for all employees in pensionable employment and is funded by contributions from employees, employers and the self employed. The CPP pension is based on a percentage of an employee's earnings up to a limit. CPP pensions are generally payable from age 65 but may be received on a reduced basis upon retirement at or after age 60. CPP pensions are indexed annually with increases in inflation. The maximum monthly CPP pension for an employee retiring at age 65 in 2008 is $884.58.

OAS retirement pensions are provided from age 65 to all Canadians subject to satisfaction of residency requirements. OAS pensions are funded through general tax revenues of the Federal Government and are a flat monthly amount subject to quarterly indexing to increases in inflation. The maximum basic monthly OAS pension for an employee retiring at age 65 in the first quarter of 2008 is $502.31.

Like group benefits, employers often consider establishing a pension/retirement savings plan as an employee attraction and retention tool and it should be designed as part of the employer's overall compensation strategy. Also, a pension/retirement savings plan established for employees can often offer investment management and other fees, particularly with respect to a defined contribution type of plan, that are lower than the employee could obtain on an individual basis. These lower fees mean that more of the dollars contributed to the employee's retirement account will ultimately be available to provide retirement income. Finally, pension/retirement savings plans offer a tax effective method of rewarding employees and assisting the employee in saving for retirement.

Pension and retirement savings plan advisors are compensated on either a fee for service or commission basis, or a combination of the two.

For plans that are of the Defined Benefit type, the pension consultant, actuary and auditor are nearly always compensated on a fee for service basis, while the investment manager is compensated based on a percentage of the assets it manages. These fees are typically payable from the pension fund and since the employer is responsible for the overall funding of the plan (after any employee required contributions) the employer effectively pays these fees.

For plans that are of the Defined Contribution type, the pension consultant may be compensated on a fee for service basis (usually for larger plans) or on a commission basis (typically for smaller plans). In addition, the investment manager is compensated based on a percentage of the assets it manages.

It is important to understand that in most plans of the Defined Contribution type, where the advisors are compensated by commission or based on assets under management, it is often the employees themselves who effectively pay the expenses of the plan as the rate of investment return they earn on their Defined Contribution accounts is determined after the fees and commissions of the plan advisors are paid. Therefore, the employer has a duty of care to ensure the fees of the plan are reasonable and in line with market conditions, especially if it is the employees themselves who are effectively paying those fees.

A reputable pension/retirement savings plan advisor will ensure the employer understands how the advisor's compensation is determined and the level of compensation received, at least on an annual basis.

Most new pension/retirement savings plans implemented in recent years have been of the Defined Contribution variety as employers view them as simpler to administer and easier to budget pension costs over time. Also, many employers who had plans of the Defined Benefit type have chosen to convert these plans to a Defined Contribution basis in recent years. While Defined Benefit pension plans still dominate in the public sector and with medium to larger unionized shops in the private sector, they are less predominant with non unionized private sector employers.

While Defined Benefit plans have advantages for both employees and employers, employers have shied away from them in recent years due to the unpredictability of Defined Benefit pension costs, complex legal environment surrounding these plans and the perception by employers that Defined Benefit plans are more expensive than Defined Contribution type plans.