May 11, 2010
Pension Plan Sponsors Take Actions to Improve Funding Status, Manage Risk and Maintain Good Governance in an Ongoing Effort to Build Secure Defined Benefit Plans
Brookfield, Wis.—A new survey conducted by the International Foundation of Employee Benefit Plans finds multi-employer and public employer defined benefit (DB) plans in Canada face significant funding challenges, but that plan sponsors are taking steps to address these concerns and ensure the long-term viability of these plans.
To help improve the funded status of their DB plans, a large majority of survey respondents (70%) report their plans took a number of actions over the last year to strengthen their financial standing. The most common approaches taken by plans include: examining actuarial cost methods and assumptions (41%); reviewing, and revising if necessary, investment policies (36%); examining benefit formulae to determine if they can be achieved in the future (29%); seeking increased contributions without a comparable increase in benefit accruals (25%); and revising actuarial cost methods and assumptions (24%).
To further improve solvency ratios, 44% of DB plan sponsors report that it is likely or very likely that additional contributions will be needed to fund pension plans in 2010. A smaller proportion, 15% of survey respondents, anticipate it is likely or very likely that they will have to reduce pension benefits in 2010. This is up slightly from the 9% of DB plan sponsors who report plan benefits were reduced in 2009.
“The economic downturn of the past two years has put serious financial stress on DB pension plans,” explained Sally Natchek, Senior Director of Research at the International Foundation. “Time will tell if more plan sponsors grappling with solvency deficiencies will be forced to increase contributions or reduce benefits. For now, plan sponsors appear to be taking the actions needed to ensure they can meet their financial obligations to plan participants."
Plan sponsors are focused on making investment decisions that manage risk while improving funding levels. When asked their most important investment issues, survey respondents cite generating returns in a low-interest environment (51%). This was followed closely by understanding risk (48%), matching assets and liabilities (45%) and diversification (41%). Nearly two-thirds of the DB plan sponsors surveyed, 65%, have no plans to increase investment risk for larger returns within the next 12 months; 7% of plan sponsors report having already increased their investment risk; 12% are likely to increase their risk within the next 12 months; and 16% are unsure what they will do.
Sponsors of multi-employer and public sector plans are demonstrating their commitment to good governance with almost four in five (78%) reporting that their fund has a written funding policy. A funding policy is not required under minimum pension standards legislation in Canada, but in conjunction with a plan’s Statement of Investment Policies and Procedures, is intended to ensure that there are sufficient assets to pay the promised benefits.
About The Survey
Funding and Investment Issues for Defined Benefit Plans in Canada: Multi-Employer and Public Sector Survey Results, 2010 was conducted by the International Foundation of Employee Benefit Plans in February 2010. The survey results include responses from 387 individuals in Canada representing multi-employer plans or public employer/government plans. Those asked to participate in the survey were in the International Foundation of Employee Benefit Plans database or members of the International Society of Certified Employee Benefit Specialists.
Funding and Investment Issues for Defined Benefit Plans in Canada (Item #6870E) is published by the International Foundation. The 27-page survey costs $50 and is free to Foundation members. To order visit www.ifebp.org/books.asp?6870E or contact the Foundation Bookstore at firstname.lastname@example.org or (888) 334-3327, option 4.
The International Foundation of Employee Benefit Plans is a nonprofit organization, dedicated to being a leading objective and independent global source of employee benefits, compensation, and financial literacy education and information. Total membership includes 36,000 individuals resenting 4,800 multiemployer trust funds, corporations, public employer groups and professional advisory firms throughout the United States and Canada.