Private pension solvency deteriorating: regulator
Last Updated: Tuesday, November 22, 2005 | 3:39 PM ET
CBC News
The latest review of the 1,300 pension plans it regulates (about a tenth of all pension plans) shows a "marked deterioration" in average solvency ratios, according to a new pension update from the Office of the Superintendent of Financial Institutions (OSFI).
In December 2004, the average solvency ratio was 1.00. A solvency ratio of 1.00 means that assets equal liabilities and the plan is fully funded. But by June 2005, the average ratio had slipped to 0.91, signalling a funding deficiency.
The solvency ratio would have fallen even further but for strong stock market returns earlier this year which helped to boost plan assets.
The OSFI cites two main reasons for the deterioration – long-term interest rates remained low or even dropped, and new actuarial rules came into effect that changed how solvency liabilities are calculated.
83 pension plans on OSFI's watch list
Excluding the new actuarial rules, OSFI assistant superintendent Julie Dickson said the results "point to a slight deterioration" in the solvency of the pension plans it monitors. But she said the impact of the new actuarial standards "cannot be ignored."
Dickson estimates that 72 per cent of federal defined benefit plans (which guarantee a certain pension benefit at a certain date) were less than fully funded in June, compared to 53 per cent last December.
But Dickson said, "It's important not to overreact," pointing out that the average funding shortfall was less than 10 per cent.
"Thus, the situation can still be described as stable but fragile, but with heightened vigilance being warranted," she said.
Pension plan sponsors have up to five years to fund pension plan deficiencies.
The regulator said 83 pension plans are on its watch list. "We will likely see a number of new plans added to the watch list in the coming months," the OSFI's Dickson said.
She warned plan sponsors not to count on higher interest rates or strong stock markets to solve all their funding problems. "In this environment, disclosure to members, and member awareness regarding the health of their plan, is key," she said.
