Canadian Pension Landscape Shifting

A new survey of more than 150 Canadian pension plan sponsors from Towers Watson indicates that just over half (51%) of the private sector Defined Benefit (DB) plan respondents have now converted their plans to Defined Contribution (DC) arrangements for current or future employees – up from 42% in 2008.  

The survey also reveals that recent improvements in economic conditions have had virtually no impact on executives’ perception of a DB funding crisis. According to a press release, the percentage of respondents who agree that there is a pension funding crisis has remained at historic highs since the financial downturn of 2008. The survey found that more than half of respondents (56%) believe that the funding crisis will persist for the long-term compared to 34% who held this view in 2008 before the onset of the recession. Just under one-third (32%) perceive funding challenges to be a cyclical phenomenon.  

“The financial crisis has caused a shift in plan sponsor attitudes,” said Ian Markham, Canadian Retirement Innovation Leader at Towers Watson, in the press release. “This year’s survey results show that employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design or investment strategy.”  

While the economic conditions of 2009 and early 2010 prevented many plan sponsors from taking drastic action, the percentage of plan sponsors who are preparing to implement changes has significantly increased as the financial markets continue to improve, the survey found. Of the private sector DB plan sponsors considering adjustments to their plan design, funding policy or investment strategy, more than half (52%) indicate that they have prepared a “journey plan” of measures to contain cost and volatility.  

However, there may be some hope for traditional DB pension plans. With an aging population, a majority of survey respondents (59%) agree that employees will be showing a greater appreciation for DB pensions. The potential impact on attraction and retention is also a major concern for the majority (52%) of organizations that are considering plan design changes.   

“Canadian employees tell us that the prospect of a competitive pension is one of the top five factors that would influence them to leave their current employer, “ said Martine Ferland, Canadian Retirement Leader for Towers Watson, in the announcement.