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Tracking the funded status of pension plans - As at February 29, 2012

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

Assets fell to their lowest level in February 2009, at which point the solvency deficiency (i.e. the difference between assets and solvency liabilities) reached $37 million. Liabilities climbed to their highest point in January 2012 (last month), and that month also showed the highest solvency deficiency yet, at $39.4 million.

A sigh of relief came in February 2012, when financial markets rallied while solvency rates increased resulting in a reduction of the solvency deficit. Assets climbed by 1.1% to about $112.5 million and liabilities fell by 2.0% to $147.7 million, with a combined effect of reducing the deficit by 10.7% to $35.2 million. Nonetheless, the current solvency deficit of this typical pension plan is still at its third highest level experienced during the period shown.

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

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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 February 16, 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).