Most major Canadian pension plans underfunded: OSFI

All but 7 per cent of federally regulated DB plans underfunded last year
By Randall Palmer
||Last Updated: 10/15/2012

(Reuters) — All but seven per cent of Canada's federally regulated, private defined benefit (DB) pension plans were underfunded at the end of 2011, the government's Office of the Superintendent of Financial Institutions (OSFI) has reported.

An underfunded plan is one in which liabilities would exceed assets and employees or retirees would not get all that was promised if the company were terminated.

OSFI's annual report for fiscal 2011-12 showed that the proportion of those plans that were underfunded had risen to 93 per cent on Dec. 31, 2011, from 76 per cent at the end of 2010.

Employers have struggled with yawning pension gaps on their defined-benefit plans — under which employers commit to regular pension payments regardless of what stock markets may do — due to historically low yields on investments. This has caused some like Air Canada to seek adjustments and concessions.

Air Canada, the country's largest airline, had separately revealed that its pension deficit had doubled to $4.4 billion during 2011, and it is trying to get a cap on its payments extended from 2014 to 2024.

Private pension plans under federal regulation registered a four per cent return on their investments in 2011, down from 11 per cent in 2010 and 13 percent in 2009, OSFI said.

OSFI supervises 1,354 private pension plans covering 646,000 employees in federally regulated areas including banking, inter-provincial transportation and telecommunications. Of these, 358 are defined benefit plans, covering the vast majority of assets in the federally regulated plans.

"Although the impact of lower solvency ratios on pension plans' funding requirements will be moderated by recently implemented changes to federal funding rules, OSFI expects many defined benefit pension plans to face materially higher required contributions in 2012," it said.

The number of plans on OSFI's watch list — the ones for which it has serious concerns — more than doubled to 115 at the end of March 2012 from 49 one year earlier. Of these 115 troubled plans, 104 are DB plans.

The average estimated solvency ratio — the ratio of assets over liabilities if a plan were terminated — of the DB plans it supervises declined to 0.81 on Dec. 31, 2011, from 0.93 one year earlier.

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