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As at December 31, 2011 - Tracking the funded status of pension plans

This graph shows the changes in the financial position of a typical defined benefit plan since December 31, 2007. For this illustration, assets and liabilities of the plan were each arbitrarily set at $100 million as at December 31, 2007. The graph shows the impact of past returns on plan assets and the effect of interest rate changes on solvency liabilities.

Pension plans have experienced significant swings in their financial position since December 31, 2007. In February 2009, when assets fell to their lowest point, the solvency deficit reached $37 million. In December 2011, when liabilities peaked at their highest point, the solvency deficit almost reached $38 million. One of these two gaps was created by the financial crisis and the other by falling solvency rates.

Assets finished the year with a slight 0.7% increase and stand at $109 million in December 2011. Liabilities ended the year at their highest point at over $146 million, increasing by almost 20% since the beginning of the year and by 4.8% in December alone. The solvency deficit for this typical pension plan rose from $31.4 million in November to $37.9 million in December, a staggering 20.6% increase in one month. If solvency rates keep falling and financial markets do not improve then the gap between assets and liabilities will further deepen in 2012.

Please contact your Morneau Shepell consultant for a customized analysis of your pension plan.

Canada Bond Yards

Comments:

  1. No consideration has been made for contributions paid into the plan or for benefits paid out of the plan.
  2. Solvency liabilities are projected using the rates prescribed by the Canadian Institute of Actuaries for the purpose of determining pension commuted values. Early application of the 2009 standards is not reflected.
  3. The underlying typical defined benefit plan is a final average plan with no pension indexing.
  4. Solvency liability calculations take into account revised CIA guidance on the solvency valuation assumptions (annuity proxy) announced on November 17, 2011.
  5. Assets are shown at full market value. Returns on assets are based on those of the Morneau Shepell benchmark portfolio (55% equities and 45% fixed income).