Hello, everyone, and welcome to our 2023 Reshaping the Future event, Take Stock and Solidify. My name is Valerie Adelson. I'm a principal and client manager here at Mercer. And I will be your host for today's webinar. And I'm happy to be accompanied by our panel of experts who are Yusuke Khan, partner and investment leader for Canada, Jennifer Schmidt, partner and innovation leader in our Mercer Marsh Benefits practice, and Marty Beraldo, principal and senior consultant in our career practice.

Welcome to all of you joining us today, and welcome to our panelists joining me on this virtual stage. As we begin 2023 and try to forecast the rest of the year, we're still facing economic and geopolitical uncertainty-- a continuation of what we experienced last year. And the R word, "recession" is a real preoccupation. If we look back many, many years, we can draw parallels between certain aspects of our current situation and the '70s.

And while we can leverage on some of the lessons learned from the past, we can't lose sight on ongoing high priorities, such as ESG, the end of the era of free money, or what's currently on employees' minds, that which all certainly require fresh perspectives. What we're saying here is that as we're reshaping the future and innovating, let's not forget to take stock on the lessons learned from the past and build upon that to solidify our future.

We know that there are significant implications for employers and investors. We hear investors' questions and concerns about market volatility, inflation outlook, the ongoing fight against climate change, the importance of risk management. And we also hear employers' concerns about workforce health and well-being and workforce management, among many others.

As the goal is to make it through all this uncertainty, many factors, such as the one mentioned earlier, must be considered by investors and employers so you can make the right decisions to meet your desired goals and objectives. As we know in this time, time is scarce, and resources are limited. Let's be efficient in not reinventing the wheel and taking time to identify what remains relevant today that we can use from the past. So what from the past we can use today that's still relevant, and where we want to-- into newer ideas.

In today's discussion, Yusuke will present a financial retrospective of 2022 and the outlook for 2023, including implications for pension plans. We will continue on the topic of inflation, its impact, including the impact on wages and on the cost of employer programs. Finally, we will also share with you the main themes that will impact the financial landscape in 2023 and beyond, including Mercer's view on the opportunities they will create. Yusuke, the virtual floor is now yours.

Well, thank you, Valerie. And thank you all for joining us in such great numbers through our virtual event. It's really greatly appreciated. So as we start off February, markets are off to a good start so far in 2023. So up quite significantly in January. But some questions do remain. The economy is slowing, but by how much?

The Federal Reserve yesterday stated that inflation had eased somewhat. But inflation is still pretty high. Rates have continued to rise, as we know. And finally, the question that's on everyone's lips really, can we manage a soft landing, cool down the economy, and tame inflation without causing a recession?

So to set the stage, wanted to begin with a look back at the 2022, which saw its fair shares of ups and downs, really. And down is where most markets ended the year. And interestingly, 2022 will be remembered as a year when both equity and bond markets posted negative returns, really calling into question some of the key tenets of traditional stock and bond portfolios. And actually, the Canadian fixed income index delivered a larger decline than the equity index in 2022. And long bonds were amongst the worst performing asset classes on an absolute return basis.

So on the next slide, the reason for this appear obvious in hindsight. After years of extremely low really interest rates, fiscal stimulus, the economy had overheated. There was just not enough stuff available to meet client demand. And more recently, not enough workers really to meet employer demand, either. Now we all know that caused a spike in inflation and an aggressive response by central bankers to slow the economy.

And as we see on the graph on the left here, optimism of robust growth into 2023 had deteriorated by the end of '22 and significantly. And consensus forecast for growth in 2024 remained more muted. But the market isn't currently factoring in a recession at the moment, except perhaps in the UK. So the consensus at the moment is indeed pricing and more of a soft landing type of scenario.

That being said, the pullback is real and has also impacted business sentiment, with the purchasing managers globally, the chart on the right, now also signaling a significant pullback compared to last year. So consumer confidence in Canada has also declined significantly since the early excitement around the reopening, weighed down by higher inflation and higher interest rates. And really anything, any purchase that requires the borrowing of money now costs significantly more.

And inflation. So it's been on everyone's lips, and everyone understands why. It just seems like everything costs a whole lot more than it should. But there is some good news. Inflation has indeed been slowing. And it came in at 6.3% in December for Canada. Helped in great part by the pullback in the energy prices, oil, as we can see from the purple bars in the chart that have been shrinking.

And the post-COVID supply chain pressures are now easing. Most items now seem to be back in stock in shops. But 6.3% is still very high. It's three times the Bank of Canada's target. As inflation on food and shelter and services in particular continue to be very elevated compared to history. And these are essential goods. And an expectation that prices will continue to rise at higher rates will have impact on worker expectations in terms of wages. And we'll get back to that in a second.

And this price wage cycle is what gets policymakers really nervous. The wage-price inflation spiral of higher prices, leading to the need for more money from employees, asking for raises, employers having to grant these raises in the current tight labor market. And then passing on those higher prices to consumer, and so on and so forth. That could quickly devolve into the so-called wage-price inflationary spiral.

And price stability, which is a stated objective of central bankers, will be really difficult to achieve in such an environment. Now our base case is not for this to occur on a sustained basis. But there are, perhaps, lessons to be learned from the past year. So I showed on the next slide here, in the '70s, inflation was high in the early '70s but came down for a moment. But perhaps policymakers were afraid of slowing down the economy too much and creating unemployment.

So perhaps loosen policy prematurely before the job was done. And this let inflation make a comeback in the late '70s, resulting in stagflation. Now obviously, policymakers, economists are well aware of this history, which is why there's still much uncertainty ahead around how much tightening will be required. Will the Fed cause a so-called hard landing, a severe recession by being too aggressive? Or on the other hand, will they perhaps be too cautious and allow a stagflationary environment to develop?

That being said, rates have increased significantly across economies, while perhaps maybe not in Japan. But how much more restrictive will policy need to be? 3.3% is still not that high by historical standards in Canada. And actually, we've dropped below 3% in Canada in the last few days.

So I wanted to also share a slide on equity markets. That's home tech. That's also top of mind for many of our investors. While the 2022 drawdown has been meaningful and hopefully the worst is over. But we have to take stock and consider scenarios where the market pullback might last a while longer. So if you look at the global financial crisis, so that's the dark purple line or the tech bubble in the late 90s, markets took a much longer time to recover to their previous highs in those instances. But we obviously don't have a crystal ball. But these are risks that are worth considering.

So indeed, what can we do to solidify your position? Well, most DB pension plans are actually in a very solid financial position coming into 2023, helped by the impact of higher interest rates on their liabilities. So now may be a good time to review your investment strategy, take stock of your surplus, revisit your risk exposures, and perhaps conduct an off-cycle valuation to lock in the surplus for the next three years. But I also mentioned earlier, it's also time to acknowledge that uncertainty is likely to be with us for a while longer. So you may wish to revisit your inflation assumptions. Conduct an experienced study and stress test. Stress test your financial position for short term stocks.

Now shown here on the next slide, now we found that stress testing has been a useful tool for many of our clients. Well now again, we don't have a crystal ball. But is it worth considering what could happen to our financial position or contributions and our other metrics or the short and medium term? Should we experience more difficult financial conditions, such as stagflation, hard landing, et cetera?

So we've made an attempt to assess how likely some of these scenarios might be. But I think now it's time for our first survey. And we wanted to see with the audience, all right, what scenario they think is most likely to unfold. So I'll pass it over back to Valerie.

Thank you, Yusuke. And we'll hear you again soon. But before, as you mentioned, before passing it over to Marty, we're going to do this poll. Because we want to hear you, our audience. So the question as you see it is, which global scenario do you think is more likely? So the options to answer the poll are-- there are actually seven.

The first one being return to stable growth. Second one, hard lending. Then overheat, Goldilocks, last decade or liquidity crisis, stagflation, or other. So we are just waiting for the answers to come in. Rapidly I see that return to stable growth is the one with the highest numbers, number of responses so far. Oh, it's going a little bit down. It's moving as we're going.

The second one would be stagflation. And as we see, we still have return to stable growth going up. I love it. It's moving as we're seeing. But what we can see from here, is it seems like most of us do think they would be returning to stable growth. But we can't ignore the fact that there's-- oh, hard landing as well is now the second one. So yeah, there's a variety, and it's quite interesting. We see the game between B and F, which is stagflation, it's moving. So this is quite insightful, and it is interesting to see the results.

So now that we've heard from Yusuke, it's now time for me to pass it over to Marty to discuss salary budgets and what's on employees' minds.

Thanks, Valerie. That was an interesting poll. Thank you for participating, everybody. Let's take a look at Mercer's compensation planning survey results. Every year, Mercer conducts three separate surveys in March, August, and November. To gather information about projected and actual salary increase budgets. Here are your results from 2021 through 2022, to our most recent survey at the end of last year, which tells us what organizations are forecasting for 2023.

Organizations are primarily focused on three important figures from our survey. The merit budget, total budget, and structure adjustment. Here's a refresher for those that aren't familiar with these terms. But your merit budget is the percentage of payroll that are given to employees for your-- we'll call it the standard annual increases that reflect CPI. Some folks use the term COLA, which is your Cost Of Living Adjustment. And other market adjustments potentially in your industry.

The total budget reflects that merit increase plus any budget set aside for promotions or mid-year adjustments or any other expected events. Maybe a hiring flash or blitz later in the year. Now the structure is the percentage of change of the salary ranges. Usually based on external markets as well. So our last survey in November posted average forecasted increases for 2023. 3.7 for merit, which are the bars on the left. 4.1 for the total increases. And 3.1 for structure adjustments.

As you can see, this is a trend upwards. And as we progress through 2021 and 2022 and we were analyzing these results, they seemed modest at best. We expected a little bump up after 2020. However, when we delve deep into our most recent results and looked at the 2023 projections, we can see that almost two out of three employers are now budgeting 4% or more for a total budget in 2023.

So inflation is still the number one thing organizations are considering when they set their wage budgets. As I mentioned for merit and total, it usually includes CPI. But when we layer the inflation story over the salary increases, as you can see by our inflation zone here, it becomes obvious that the most organization's salaries are still not keeping up with inflation.

Now there are a number of logical reasons for this. Primarily, organizations didn't want to have a knee-jerk reaction at first. As the inflation rate increased. They were and still are being conservative about increasing ongoing payroll costs as the post-COVID world is still unclear, and inflation, as we heard, may be cooling. The problem for employers is we need a new playbook.

How do we meet employees' expectations of salary growth without pinching our bottom line or just being too risky? The opportunity for employers is there's a fundamental-- or for employees is there's a fundamental shift in what they expect from their employer. What they needed to be engaged and productive is different than what it was two, three, and definitely five years ago.

So what's on employees' minds? Employees' needs are changing as we seek a new normal and a desired steady state. Here's a look at the results from our most recent survey at Mercer's Inside Employees' Mind Survey that we conducted at the end of 2022. All 2021 priorities, which you see on the left-hand side, dropped or remain the same, except for financial concerns, which increased significantly.

So first, covering monthly expenses claims the top spot on the right. This is up from number 9 in 2021. Physical health and fitness is still in the top three. Personal debt was at number 6, up from number 10 in 2021. Job security has now moved into the top 10, replacing personal safety. Pace of life, free time, personal relationships. Still on employees' minds, still in the top 10. However, they fell the most as the financial concerns dominated the top six or seven.

So where do we go from here? Before I pass the mic to my colleague Jennifer to discuss employee benefits, employees, they made their perspectives known, and the Great Resignation was real. What started in 2021 in the US became a reality in Canada as a number of US and global companies dipped into the Canadian talent pool. However, since then, we've seen different iterations of this. In a shift in the labor market.

What appeared to be, I don't know, hire at all costs for tech and knowledge workers has since cooled. And major layoffs had dominated the headlines. The retail and service sector has changed. As some of you may have experienced over the holidays, airline the travel industry continue to struggle to find talent and recover from the impacts of COVID-19.

But it isn't all about money. But as I discussed earlier, money is on employees' minds. And let's be honest, it's a major part of why people go to work. You may have seen or heard a number of the terms on the screen. And now from Mercer's perspective, we are entering the Great Experiment. The employee contract continues to evolve, and employers need to harvest data, take stock, and look at the lessons learned from the last few years. Now is the time to ensure we're all focusing on the future.

So I'd like to wrap up some considerations for you as you set your compensation budgets or your total rewards plans for 2023 and beyond. First, there's an increasing legislation being put out by governments across North America requiring more pay transparency. Including external publication of pay ranges on job postings, internal equity, laws. This is likely to continue.

So it's critical that you build your own story around compensation and not let the proliferation of external data tell the story for you. Because without the right context, employees will create their own narrative, and it's likely not going to be a good one. So now is the time to get foundational structures needed in place to craft a clear and compelling message about pay at your organization.

Secondly, be strategic when planning your budget for compensation. A strong and transparent partnership with HR, finance, and your business leaders is critical. It's imperative to set a budget that considers your unique circumstances, how your pay aligns to markets, what your business priorities and financial needs are now and as you evolve for the future. That is why it's critical. Business leaders are involved, as they are the ones who are typically knocking on HR's door.

So you must prioritize your investments when it comes down to it. I strongly recommend you focus on rewarding your most loyal and high performers. As well as addressing internal equity issues driven by new higher salary premiums. Really take stock. Analyze your pay levels by multiple demographics and criteria to ensure certain groups aren't being left behind.

Third, let's talk about hourly workers. The pay for hourly workers is moving fast or faster than other segments this is likely to continue, as this is the group most impacted by labor shortages. And also the group fueling the Great Resignation, Reckoning, Expectation, and now driving the Great Experiment. Hourly workers are also extremely vulnerable right now to the impact of inflation. So evaluating your internal minimum wages and identifying any gaps should be a critical part of your financial well-being strategy.

And finally, pay is only one tool in your toolkit. Ensure you're optimizing your total rewards and your total rewards spend. Considering a broader review of total rewards is imperative. Particularly in this declining economy, where optimizing spend will be required. As you heard, there's no more free money. Leaders are expecting high ROI on any investment. Take stock and explore benefits that help meet your workers' needs. Particularly those that are low to no cost but of high value, like flexible working.

Thanks, Marty. You give us valuable information on wage budget compared to employee expectations, the rise of financial concerns compared to the other needs that we used to see that used to be higher, but now we see workers' financial concerns are much higher right now. You also talked about the era of the New Experiment, where we see the transition to pay transparency, the importance of governance to address internal equity issues. And as you just said, let's not forget about the vulnerability of hourly workers in the current context.

Jennifer, we're now ready to hear you on benefits cost and how to take stock and focus on the future in that space.

Thanks, Valerie. To build on what Marty and Yusuke have been saying, I just want to talk a little bit about inflation and how it relates to benefit programs to set the stage. Benefit plan trends have typically been higher than CPI. So our inflationary norm is a little different, usually in the range of 5% to 8% increase year over year. The graph that is up on your screen, I just want to reiterate that it adjusts for the pandemic shutdowns, where there were essentially no claims for most health and dental services, except for drugs. So that's March to May 2020, when the world came to a halt in Canada.

And then there was suppressed demand in varying degrees through different regions for the remainder of 2020 and into 2021. 2022 was an unusual year, with the average renewal increase landing at 4.4%. And we really do expect 2023 to return to the more typical levels of 8% per annum. So you can see that our trend line is a little more stable and has been above that CPI trend for a long time. And so the inflationary discussion on the benefits programs is not new. But the focus on it is simply because the inflationary focus is on other parts of compensation and total rewards.

If we look at what's driving the cost of benefits plans, there's a lot of reasons why benefit programs are mostly decoupled from inflation. And we've segmented the cost drivers into drugs, dental, paramedical, and other health expenses that are more subject to inflation and then disability. So the main cost driver is drugs. And because it's such a large portion of your health program, within the drug spend is specialty drugs. And we define that, the industry defines that, as a drug that costs more than $10,000 a year.

So that's not your penicillin. It's not your antivirals. It's not your regular cholesterol drugs. It's more related to gene therapies, cancer treatments, and rare disease treatments, which are smaller in number but bigger in impact. And it's also inclusive of chronic disease therapies for things like rheumatoid arthritis, Crohn's, and multiple sclerosis, just to name a few.

So there's upward pressure with new drugs, and we expect that to continue with the pipeline of rare disease drugs. And the limited use drugs that are out there, which is offset by provinces gradually promoting the switch to biosimilar drugs. Biosimilar drugs are the-- loosely the generic drug of a biologic drug, which most specialty drugs are.

If we look at dental care, dental care is governed by provincial or jurisdictional dental fee guides. And for years, we have seen lower fee guide increases in the range of 2% to 4%. But for 2023, we're looking at 3% to 10%, which is a big shift. Most notably, the three most populated provinces are looking at almost 6% for BC, 8.5% for Ontario, and almost 10% for Quebec.

Why do we care about the dental fee guide? That fee guide dictates what insurers will pay as an eligible expense. It also dictates the cost of treatments that have been maybe delayed due to the pandemic. People have been nervous. They haven't been comfortable to go to their dentists for preventive care. So now they're getting a cavity filled, which in 2021 would have cost maybe 10% less than it's going to cost in 2023.

There's a limiting factor on this upward pressure, and that is that most dental plans have annual maximums in effect, and that caps that inflationary impact. When we look at paramedical services and other health expenses, these ones are more susceptible to inflation. And carriers will adjudicate those claims based on reasonable and customary levels in the market.

So there's an inflation impact, but the carriers are monitoring the market level. So your costs will rise, but they won't rise out of what is expected within that market. On top of that, we're finding that people are using those non-drug services and supplies to manage chronic health issues and to prevent illness. So there's an increase in psychology support. There's an increase in things like acupuncture and massage and chiropracty.

And even something as simple as the new focus on how sleep matters for health. There will be an increase in people who are getting CPAP machines to help them sleep at night. So the mitigating factors on this upward pressure is the high prevalence of plan maximums and the insurer market cost analysis.

Disability-- a little more difficult to predict universally. It'll depend on your employee group's demographics, as well as the health of your group. We're seeing increased incidence of disability, both on the short and the long term side. With mental health stigmas reducing and the impact of the pandemic on the mental health of the Canadian population as a whole. But also delayed access to care during the pandemic and continued delays on surgeries and diagnoses is putting the strain on employers. It's putting the strain on employees and their families in terms of productivity and the severity of disease when diagnosed.

So what does all this mean? It means there's a huge opportunity to embrace preventive care. It means we need to take a look at chronic disease management and mental health supports. And it's time to look to technology for new and efficient ways to deliver benefits.

So if we take stock, which is our theme, take stock, think about optimizing your programs and investing in health. The theme has been no more free money. Marty talked about total rewards. So think about prevention. What about cost for low usage programs? Is that actually a valuable program? Low usage doesn't mean not valued. But maybe there's a program out there that you should be evaluating.

What about redirecting spend? From some of those programs that aren't perceived as valuable, to programs that will support the emerging needs of your workforce. Then think about inclusivity. What about family planning? What about women's health? What about gender affirmation support? What about our incoming Gen Z? Because they have a very different perspective on what they value in an employment relationship.

Are there groups being left behind? And Marty talked about that, too. When you're evaluating your total rewards, are there groups being left behind? Are you training your people and particularly your managers around mental health and inclusivity? Finally, when you're taking stock and you're looking at optimizing and investing and prioritizing, embrace that digital health potential. Think about on demand care. Think about the dream of similar access for urban and rural employees and their families.

Think about broader options to meet your employee well-being needs. Can you be the trusted facilitator of optional well-being benefits as well as core benefits?

Thanks, Jennifer. This was very insightful. And you just provided good information on the correlation with CPI, the cost drivers, the potential opportunities, and how to take stock and focus on the future. Now, moving on to our deja new concept. There are three main teams and opportunities that we believe can help you in taking stock. The first one being history rhyme. Meaning that in the past, we experienced resources conflict, weak growth, high inflation, and so on, leaving investors looking for past lessons that they could leverage on to better prepare for the future.

The second one is positioned for transition, meaning the declining commodity availability is leading to invention, innovation and technologies, in areas such as energy, environment, health care, and beyond. And finally, degrees of freedom, which can remind some of us of our statistics courses. But here we're speaking about the quality of governance, meaning the ability to capitalize on opportunities. The capacity to make sophisticated investments and the potential to dynamically diversify.

Yusuke, I only did a brief overview of our teams and opportunities. I will let you pursue the discussion on this topic in more details.

Well, thank you, Valerie. And maybe I'll just go back to the previous slide for a moment. So every year, our strategy team gets together. And this is really a group of thinkers from various regions, where Mercer operates. And it's a really useful forum and we consider what broad overarching themes that we think will guide markets and economies and portfolios in the coming years.

And for 2023, we landed on deja new as the title for what we call our themes and opportunities. And really the rationale behind this choice that we saw, certain echoes from the past and the current environment. And it's indeed been 40 years since we last saw inflation at these levels. And we've heard the echoes or the references to the '70s in the media.

But there are also significant differences. And I think most importantly for us as investors is that there are many more tools available and portfolio choices available really to investors today than there was back then. Back then, the pension portfolios were essentially bonds and maybe some stocks, equity investments. And the strategies available today are a quantum really more flexible and innovative than what was available to investors in the '70s. So we really do think that there are opportunities in the current environment.

So moving on to the next slide. So as Valerie mentioned, we've segmented our themes and opportunities into three sections. And the first we called history rhymes. And I think it was Mark Twain who said that history doesn't repeat itself, but that it often rhymes. So what are we talking about here? Well firstly, the importance of reviewing this inflation playbook. And particularly the fact that potential inflation shocks remain a threat, as I mentioned earlier in my scenario chart.

And that allocations, perhaps to inflation where assets, such as real assets and natural resources equities, for instance, may benefit in an environment of higher broader inflation. Another key theme is, and I mentioned it earlier, the end of free money. Ultra low cost of capital may be coming to an end or perhaps has come to an end. The Bank of Canada rate is now back at 4.5%. The Federal Reserve raised yesterday.

Investors now require a healthier return to invest or to lend. So be careful of assets that today may appear cheaper compared to valuations in an environment when hundreds of billions of dollars in government debt traded at negative yields. And that's not it if we look at high yield bonds, for instance. So you might actually achieve actual higher yields.

Yields have come down a bit in January, as I mentioned earlier. But you can still get north of about 8% yield on a US high yield bond portfolio, which is certainly a lot more interesting than what we had last year. And yes, there is also strong parallels between the geopolitical tensions and challenges of today and the '70s and a possible reversal of globalization into more regionalization and the fractionalization of economies. The US, Canada, and its block. Russia, China.

In this environment, building diversified and robust portfolios and conducting those stress test analyses becomes very important, in my view. So as I move on to the next slide or second theme, position for transition. And this topic continues to be central for many of our clients. And we believe that engagement activities by investors will continue to increase over the coming years.

The world faces some critical challenges. And that we present here a framework investors can use to establish their engagement activities on particular topics. And investors can do this in a way that is aligned with their beliefs and objectives. If you're an endowment, a foundation, or a DB, or a DC plan, your objectives and stakeholders preferences may be different.

Now why is this important? Well, because companies that fail to address some of these issues may come under pressure from investors over time, and that could result in a real financial risk for portfolios. So we think that it's important that investors develop their own engagement principles, perhaps through an ESG workshop, and that those principles are translated into tangible objectives that can be measured by a portfolio analysis.

So what can one do really from an active ownership perspective or from target? Sustainability themed investments, as we see here. Some investors may also wish to align their portfolios with their mission and not invest in companies associated with a topic of interest. Now these beliefs should be owned by each investor. So it is important to come up with your own strategy.

And actually as part of that strategy, we believe that there is an opportunity here for innovation to find its way into portfolios. Investors can provide capital to those businesses that will develop and provide solutions to problems for the future. And it's clear that innovation will continue to be well needed for the years and really decades to come.

OK, so we called our final theme degrees of freedom, as Valerie mentioned. And this really speaks to the need-- well, the need for flexibility. Flexibility and seizing opportunities that could be very time sensitive. Unique opportunities when considering private investments for those investors who have a longer time horizon. It's an opportunity to access opportunities that actually may not be readily accessible through traditional stock and bond portfolios.

Flexibility also in portfolio construction. And we use here an example of how to build a real asset portfolio. There are strategies that can have their place where we can see an interest in sensitivity to the current higher inflation environment. So the inflation sensitivity is certainly a key feature investors look at when constructing a real asset portfolio.

But there are other factors that could also be considered, such as ensuring proper diversification, income generation, objectives versus capital, appreciation objectives on the upside, and the benefits of physical ownership of a tangible asset, and of course, the importance of ESG integration in portfolios. So I did also want to spend a few minutes talking about specific actions for DC plan sponsors.

Now financial wellness remains a priority. There is market volatility. We've seen negative returns for both equities and fixed income in 2023. Bonds were supposed to protect on the downside. And there are just very few places to hide. And the employees are likely to be concerned about what it means for their personal finances. So this is a very different set of circumstances compared to DB plan sponsor, who on average, as I mentioned earlier, are now in a better financial position than this time last year.

So what can plan sponsors do from a DC perspective? You can assess the suitability of your target date options. You can revisit the investment structure and options available and its alignment with the membership demographics. You can also consider member education and communication to help members focus on investing for their time horizon and objectives.

The regulatory environment is also evolving, and it will be important to stay up to date with the council guideline developments, ensure compliance with updated and any new guidelines, and the review, the implications of these guidelines on your plans. And finally on ESG, DC plans should ensure that committee members understand the ESG landscape and can make informed decisions on these very important issues that likely will generate some stakeholder interest. As mentioned earlier, you should establish and document the ESG beliefs and monitor your portfolio against them.

So with that, I'll pass it back over to you, Valerie.

Thanks, Yusuke, for providing a more thorough explanation of our three themes and opportunities and for the information on top trends for DC plans. We will now do a last poll. And the question is, what are your priorities for 2023? Is it building a resilient portfolio, managing risks and costs? Or is it employee financial wellness, attraction and retention of talent, or other? So there are five options. I will give you the time to answer the poll. As you know, I like looking at the results as they're coming in. And we're just going to see what it looks like.

OK. Rapidly right now, we're already seeing that attraction and retention of talent is coming first. It's still the high priority. And as I was saying earlier, we're in this continuation from what we've seen last year as well. So second right now, we do see managing risks and costs. But attraction and retention of talent is still taking the lead at the moment.

Some results are coming in, but it's not changing what we're seeing. So we're still seeing that attraction and retention of talent would be the priority at the moment. And it's not surprising at the same time. But it's always interesting to see which one comes first, which ones come second. And managing risk and costs, obviously from what we've talked up until now, it is very understandable that it's also considered a high priority.

So this is quite interesting. And so we've seen from the results of the poll, we can see where priorities are for you participating today our audience in this webinar. And from what we've talked today what, we just heard, moving on to our conclusion, we see that from last year to this year, it is more necessary than ever to take a moment to identify what tools from our existing toolbox can be used. Which ones need to be adapted to our current situation. And finally, we also need to identify which new tools that we need that will be required not only for today, but for the future as well.

So now that we've been through and we've had the discussions and we've heard Yusuke, Marty, and Jennifer, I will ask you again, Yusuke, Marty, and Jennifer, if you could provide us, please, with your own point of view on how much this is true in your respective area. And we'll start with you, Yusuke.

Thank you, Valerie. So I really think the key takeaways here is that we are living through uncertainty, and now is a good time to review your investment strategy, really. To make sure that it's still well aligned with your objectives. To also stress test for scenarios which may be less likely, but understand the implications, should these occur. We also would encourage you to revisit your beliefs on ESG and to establish a process to ensure that your portfolios are well aligned with these beliefs.

And finally, the importance of having a good governance in place. Of making sure that decisions are well considered, decisions are implemented in a timely manner. And as we saw last year, the environment can indeed move very quickly.

OK. Marty?

Thanks, Valerie. From a career perspective, workforce needs in the workplaces are transforming at a pace we've never seen. In the short term, organizations are still worried about inflation and the turnover, as we saw in our poll as well. So it's really about investing your compensation dollars wisely. So focus on your most loyal and highest performers. As we discussed earlier as well, think about your hourly employees. And perhaps those that have been left behind or that require some pay equity adjustments. But overall, thinking long term, review your total rewards investment. Is it future focus?

And just to follow up on that survey in particular, which really resonated with me. The two top issues are attraction and retention and risk management, which ties beautifully into our three recommendations for benefits, which is manage the risk and embrace prevention. Your health of your population impacts the health of your business. So look for those modern health management tools, including the digital health options.

Embrace technology for delivery. If you want engaged employees, make it easy for them to understand what you're offering them in their benefits programs. And optimize your spend by offering benefits that employees value. And when you're looking at risk and cost in the no free money, ensure that your financial terms are the best ones that are out there. So back over to you, Valerie.

Thanks, Jennifer. Well as you know right now, it's already the end of it. But before we finish, I want to take the time-- we'll go over the questions. First of all, we want to hear about you, our audience. We want to hear your questions. But I also want to say thank you to the three of you for your valuable information provided today.

We will now open the virtual stage to questions. I invite you to write your questions in the box. And we will be more than happy to answer them. And for the ones we can't answer due to time constraints, you will receive by email the answers to the questions. So I will just see what will come in. Any questions. OK.

Let's see. OK. Well, I feel like there's already one I could start with. I'll go with you, Yusuke, for that first question. Rates have now increased significantly. Is now a good time to increase our bond allocation?

Thank you, Valerie. And if only we had an answer to such questions. Indeed, rates have increased significantly compared to where we were at last year. And it's actually hard to believe that it wasn't all that long ago when people were talking about negative interest rates and negative yields.

So I think it does come back to what I was saying earlier and the need to review your financial position, to see where your surplus might be. And conduct perhaps an asset liability study to see what some of the options available to you are and whether some changes to portfolio can be implemented to improve your financial position or to help you manage certain risks that your pension plan may face. And that's for DB pension plans.

If you're an endowment or a foundation, it's a completely perhaps different scenario you're facing. You now have to spend 5% real in order to preserve the purchasing power of your portfolio. So that still speaks to the need for fairly high expected returns in portfolios. And maybe 3%. Yes, it's a lot better than what it was last year, but it's still by no means very high compared to the history of the last 40 years.

Thank you, Yusuke. Jennifer, I actually have two questions for you. So the first one being, there's so much that is not in my control when it comes to benefits costs. If there was one thing I could do to improve our NS employee benefits, what do you recommend?

One thing. One thing only. Look at your current spend. Look for opportunities in that current spend to redirect to appropriate mental health supports. And I say why mental health is going to be your follow-up question. Because it can impact so many different parts of your organization and your benefits costs. Engagement, attraction and retention, your drug costs, your disability costs, your paramedical costs. The list, it just goes on.

If you have a psychologically healthy workforce, your business is healthy. And in terms of talent attraction and generations, and we talk about generations maybe more than I would like to, being not Gen Z. But the Gen Z people are just so much more literate around mental health needs and wants. They're looking for employers who will support mentally healthy lives.

So if you implement and facilitate access and there's no new money, find the money to implement and facilitate access to those mental health supports. Because they're also relatively inflation proof.

Thank you. I see one. I'll move back to you, Jennifer. I'll ask you a question right after. But I have one that's also for Yusuke. What's hard landing?

Yes. So sorry. So that is some language you might hear in the media. And it's often presented as an opposition to a soft landing. And I think you can see the imagery. A hard landing is a scenario where there was a much more severe downturn in the economy. The economy grinds to a halt. But I mean, it would be-- actually, it would be a halt. It would be a more severe recession, which would lead to much more difficult conditions for investment portfolios.

As opposed to a soft landing, where the interest rates do rise. The economy does slow down. But the dosage is controlled in a very refined way to stop just in time to avoid a scenario where the economy tips into a recession.

Thanks, Yusuke. The other question can be a little bit general, but I'm assuming it would be for Jennifer. So maybe if I'm wrong, somebody else can chime in. What do employees value right now?

So I'll jump in on that, Valerie. And then if Marty and Yusuke want to jump in as well, they can. But my team is actually looking at our analysis of our most recent Global Health On Demand Survey now. It's a survey of employees globally with also a significant proportion in Canada. The results are going to launch in March.

But early indications are that employees are looking for employers who support and care for their well-being. That is not news. That is what our past surveys have shown. But the key to that is, how do you do that? How do you keep doing that if you're already doing it? How do you start doing it if your employee perception is that you're not?

It's a deeper conversation to be had on a more individualized basis. Happy to have a coffee. But in general, it's about building that trust. It's about offering a broad selection of benefits supports. And we're doing a lot of work right now on inclusivity. Looking at those populations that are left behind or have been marginalized. And how can benefit programs support them in terms of priorities for 2023 and beyond?

Thanks, Jennifer. So let me see if we have-- OK.

I think if you don't mind, I'll jump in on that one as well.

OK, sorry, Marty.

I think that, I mean, we hear flexibility and flexibility. And I see some of the questions rolling in, it's hard to keep up. But I think some folks are asking, what do you do in total rewards of flexibility? I'd say we're not there yet. I mean, the key to understanding is understanding, what do employees want in your organization? Right? So really getting underneath what they value from a total rewards perspective, but also from an employee value proposition, right?

So how does flexibility fit into total rewards, but also in the work day to day? So I think if you really look into what is on your employees' minds, we have got a few solutions around how we can facilitate those discussions and things like that. But then you really get a sense of carving out, what do these types of employees prefer from a benefits perspective or from a pension perspective or a salary perspective?