DBRS Study: Canadian Private Pension Plans Maintain Short-Term Performance in 2009
Although 2009 was another highly eventful year for Canadian defined-benefit pension plans, there was very little change in key macro statistics when the dust settled, according to a DBRS study published today. “In a nutshell,” says Kent Wideman, Chief Credit Officer, “benefits from the meaningful recovery in the stock market were neutralized by higher discount rates.”
All things considered, DBRS continues to view the private pension situation as manageable. While few plans are in a surplus position, most are funded at reasonable levels that would strengthen meaningfully with any combination of higher performance or lower discount rates (neither of which has been a positive contributor over the past decade). Nevertheless, this manageable status does not negate the reality that a sizable defined-benefit pension plan represents a very long-term obligation for a company, with inherent risks and uncertainties that could lead to funding challenges at inopportune times.
“Recent changes in solvency regulation may be beneficial in some circumstances, but, overall, companies with defined-benefit plans can’t be complacent in the ongoing challenge to maintain their manageable pension positions.” says Peter Schroeder, Managing Director. “It is not surprising that, where possible, companies are shifting to the less risky defined-contribution plan format.”
This study includes 66 defined-benefit plans from some of the largest Canadian-based companies, accounting for close to $148 billion in plan assets. Pension-related public plans and the major asset-manager plans are not included. The conclusions of this review may not be accurate for plans that are outside of the study.
If you are interested in receiving a copy of this study, please email info@dbrs.com.