Canadian Pension Plans Show Renewed Strength
Jul 23, 2007
Ottawa (22 July 2007) - The health of Canadian pension plans has been upgraded significantly by two leading corporate pension consulting firms that had been warning for several years of a ‘funding crisis’ in workplace pension plans.
Watson Wyatt Worldwide and Mercer Human Resource Consulting released separate studies this month revealing a renewed strength in retirement plans.
The Mercer Pension Health Index is at levels not seen since the fall of 2004, with the index rising from 84% at the beginning of the year to 89% at the end of June.
Meanwhile, Watson Wyatt found that pension funding ratios are at their highest levels in five years. For the average plan, the pension funded ratio — or the ratio of assets to liabilities — climbed to 102% by the end of the second quarter of 2007. That’s up from 86% at the start of 2006.
Both firms attribute the improvement to a number of factors.
“It’s due to an increase in long-term interest rates that have lowered the cost of pensions," says Paul Forestall, a retirement professional leader at Mercer. He adds that funding ratios could have improved even more but the index doesn’t account for contributions that sponsors would have made over the past few years.
Strong equity markets
Paul Muldowney, another spokesperson for Mercer, says strong equity markets were also a major contributor to pension plans’ general good health.
Martine Sohier, a senior consultant at Watson Wyatt, also attributes the good news to increased bond yields over the past six months and healthy returns.
"This is a good sign for sponsors in terms of funding requirements and on the accounting impact they may represent," she says. "At this point, hopefully, deficiencies are a thing of the past."
NUPGE Secretary-Treasurer Larry Brown welcomes the news about the growing financial strength of Canadian pension plans.
“This certainly reflects our message that the so-called crisis was over-hyped," Brown says.
"The improved financial situation indicates that most funding shortfalls highlighted over the past several years were not a crisis, but a temporary setback problem which could easily be managed.
“Perhaps now with a growing consensus that there is no funding crisis in Canadian pensions plans, corporate leaders and policy makers can concentrate on the real pensions crisis in Canada and that’s the alarming decline in pension coverage for new members of the workforce," Brown says.
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