Bank of Canada Report Optimistic on DB Funding Status
Such was the message in a recent report published by the
Bank of Canada, which suggested stringent government
regulations unfairly target corporate plans.
The report downplayed the risk to Canada’s financial market
of the underfunding of the plans, which has been a concern
since 2000, a time when the equity markets in
which pension funds invested a majority of their
assets were weak.
According to Reuters, the equity markets have since
rebounded somewhat, bettering the funding situation of
these corporate plans, with the proportion of plans that
were considered severely underfunded decreasing in the
first five months of this year.
Even if the news for corporate pension plans as a whole has
improved, individual firms could suffer from funding
problems and plan members could see a reduction in
benefits, increased contributions or elimination of their
plans, according to Jim Armstrong, a researcher for the
Central Bank and the author of a recent article in the Bank
of Canada’s Financial System Review.
In the two and a half years leading up to May 2006, the
assets of insolvent plans as a proportion of total assets
of all plans studied decreased to 44% from 79%. The
aggregate solvency ratio of all plans increased from 93% to
95% and is expected to reach 109% by 2010 if inflation
stays low.