Canadian DB Plans on Wild Ride

June 1, 2010 ( – The significant volatility in the equity and bond markets since the beginning of May has hurt the accounting positions of Canadian defined benefit plans, according to a new analysis from Hewitt Associates in Canada.

A Hewitt news release said the aggregate funded ratio of Canadian defined benefit pension plans decreased from 99% at the beginning of May to a low of 92% at close of business on May 20 before recovering somewhat to 94% by May 28.

The current volatility in the financial markets means that there are significant swings in deficit position on a daily basis. The deficit of Canadian DB plans has moved from $1 billion at the start of May, to the May 20 low of $12 billion, subsequently recovering to $8 billion by May 28.

The funding position between January 1 and the beginning of May had moved very little in comparison.

Hewitt pointed out that this increased volatility comes at a time when plan sponsors are focusing on the final stages of the transition to International Financial Reporting Standards, which will mean the funding position of the plan will be directly reflected on the sponsor’s balance sheet.

“The dramatic swing in the funded ratio of these plans underscores how vigilant plan sponsors have to be in monitoring risk factors,” said Thomas Ault, a senior retirement consultant in Hewitt’s Vancouver office, in the news release. “The current volatility in the markets requires plan sponsors to take appropriate steps to manage risk. While a certain amount of pension risk is healthy, plan sponsors need to determine their comfort level and then adjust their strategies with the changing landscape—as interest rates, currency exchange rates and inflation, among other risk factors, impact investment returns.”

The source for Hewitt’s data is its Pension Risk Tracker. The Pension Risk Tracker updates the aggregated funded ratio of defined benefit pension plans of companies in the S&P/TSX, S&P 500, FTSE and DJ Euro Stoxx 50 on a daily basis. More information is at