Canadian Plan Funded Status at All-Time Low

Canadian pension plan solvency is at historical lows, according to an analysis by Watson Wyatt Worldwide.

The pension funding ratio for Canadian defined-benefit plans declined 27 percentage points to 69 percent in 2008. Funded status declined 11 percentage points in the fourth quarter, according to the analysis. The yearly decline is the lowest since pension funding ratios started being measured in the mid-1980s, according to Laura Samaroo, a Watson Wyatt retirement practice leader. The previous low was 75 percent in September 2002 and March 2003.

“Canadian pension plans are certainly reflecting the declines in financial markets,” David Burke, Watson Wyatt retirement practice director, said in a news release. “What’s most troubling is that the significantly higher pension contributions that will be required to offset sizable investment losses are placing additional strain on companies and negatively impacting corporate capital investment plans for 2009 and beyond.”

Defined-contribution plans also showed significant losses, with account values dropping 10 to 20 percent, according to Watson Wyatt.

“As defined-contribution plan participants watch their account balances fall, their anxiety levels are likely to rise,” Dan Morrison, a Watson Wyatt senior retirement and investment consultant, said in the news release. “And with investment losses making retirement less affordable, expected retirements may be deferred or, worse yet, employees may retire on the job—struggling to be productive and engaged.”

Similarly, a report by investment consultant Mercer shows a 23-percentage-point decline in the Mercer Pension Health index to 59 percent for Canadian plans. The index reflects the funding ratio for a model pension plan.

“Most equity markets fell by more than 30 percent last year in local currency,” Yvan Breton, a business leader for Mercer’s Canadian investment consulting business, said in a news release. “Even for plans that benefited from the fall in the Canadian dollar because they did not hedge foreign currency exposure, pension fund assets were hit hard in 2008.”

Filed by Timothy Inklebarger of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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