Almost nine out of 10 Canadian CEOs say pension funding is in trouble, according to a new survey released Monday.

Compensation experts Watson Wyatt said 88 per cent of Canadian chief executives surveyed now believe that defined benefit pension plans are underfunded, 42 per cent higher than the number who held the same feelings in 2008.

The global financial and equity market slump in 2008 and 2009 has hurt the returns for existing funds, forcing firms to pony up more cash to maintain their pension plans, whether of the defined contribution or defined benefit variety, Watson Wyatt said.

"The severity of financial threats, particularly the cost and volatility of maintaining DB plans, has increased substantially in the current financial climate," said the consultancy in its annual survey of CEOs' attitudes toward pensions.

In 2008, 62 per cent of executives — a relatively low level — thought Canadian pension plans were inadequately funded. Of those responses, 34 per cent of CEOs said the problem was long-lasting while another 28 per cent believed the funding woes were related to cyclical downturns in financial markets.

But in 2009, more than half of CEOs, 53 per cent, believed the pension crisis is long-term in nature and needs government to fix the rules surrounding these plans, while 35 per cent of respondents said the 2009 pension crisis was cyclical and likely would ease once equity markets rose to higher levels.

"These companies are being hit with huge cash requirements [because of the economic recession]," said Laura Samaroo, Watson Wyatt's retirement practice leader, Western Canada.

New rules needed

Currently Ottawa, Ontario, Alberta and British Columbia are examining whether to change their existing pension rules, Samaroo said. (The federal government regulates pensions as does every province except Prince Edward Island).

Right now, some pension authorities are easing the existing requirements concerning how quickly companies have to eliminate any shortfalls in their plans.

But nearly 90 per cent of the executives said one possible solution is for governments to push back the point at which firms with underfunded plans need to get member approval to maintain a shortfall status.

Changing that deadline would give companies more time to make up for the shortfall through stock market returns rather than higher corporate contributions, experts said.

Of course, the longer the funding period, the more likely that the pension plan will face a larger financial shortfall due to a stock market crash within that time frame.

Samaroo said, however, establishing overly onerous requirements for funding pensions could threaten a firm's solvency and lead corporations to get out of the retirement business entirely.

"There isn't any mass exodus [in terms of companies winding up their pension plans]. But, the real concern is that companies not provide pension plans," Samaroo said.

One-third of the 156 CEOs who replied to the questionnaire said they would make substantial cuts to their capital spending programs in order to cover their pension plan shortfalls.

Less spending on new equipment often places firms at a competitive disadvantage with companies that are updating their production, economists said.