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As at September 30, 2012 - 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.

The evolution of the financial situation of pension plans since December 31, 2007

Financial markets around the world got a strong boost from the European Central Bank’s announcement of a bond-buying program and from the Federal Reserve’s announcement of a third round of quantitative easing, or “QE3”, in September 2012. Consequently, assets increased and the solvency deficit decreased. Assets climbed by 1.9% to about $114.6 million, its highest level experienced during the period shown, and liabilities fell by 1.0% to $157.1 million. The combined result was that the deficit has decreased this month by 8.2% to $42.5 million. Nonetheless, the current solvency deficit of this typical pension plan is still at its fourth highest level experienced during the period shown.

Since the beginning of the year, the funded status of this typical pension plan has deteriorated. The deficit has increased by $4.6 million (a 12.0% increase).

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

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).
  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).