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Tracking the funded status of pension plans - As at March 31, 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, and that month also showed the highest solvency deficiency yet, at $39.5 million.

Financial markets remained virtually unchanged in March (less than a 0.1% increase) while solvency discount rates fell. As a result, assets increased but at a much slower rate than liabilities. This widened the solvency deficit to $36.3 million. Since the beginning of the year, assets have nonetheless risen at a greater rate than liabilities, respectively resulting in a 4.3% decrease in the solvency deficit.

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

Canada Bond Yields

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).

News & Views - April 2012 (PDF)