Hewitt pointed out in a news release that from mid-June to early November of 2008 the aggregate funded ratio of S&P/TSX company-sponsored defined benefit plans dropped from 112% to 86%, and by the end of November 2009, their funded ratio had improved to 97%. While the extreme volatility produced some change in attitude toward pension risks on the part of plan sponsors since Hewitt’s 2008 Global Pension Risk Survey conducted before the financial crisis, unlike their counterparts in the U.K. and U.S., employers in Canada are not rushing to make changes, preferring to take a more cautious approach to pension risk management, the 2009 survey found.
Hewitt said this could be because Canadian respondents do
not see a business impact of higher company contributions to pension plans. Of
the 84% of respondents expecting to have to make higher contributions as a
result of the credit crisis, only 4% indicated that the additional
contributions would have a significant impact on their business.
“Funding relief measures provided by pension
regulators clearly softened the blow of the events of the past 18 months,”
said Rob Vandersanden, a senior pension consultant in Hewitt’s Calgary office,
in the news release. “However, 55% of Canadian employers indicated they
would not be taking advantage of the relief measures, primarily because they
were not cash constrained. Perhaps, like Canadian banks, plan sponsors in
Canada did not suffer from the effects of the credit crisis to the same extent
that organizations in other countries did.”
Canada continues to have the lowest global incidence of
plan closures; however, Canadian employers are at least a year behind American
and British organizations in implementing pension risk measures. Forty-four
percent of Canadian DB plan sponsors have not yet developed a long-term
strategy for managing pension risk.
The survey did find Canadian employers are taking some
action. “What is encouraging is that 45% of organizations with DB plans
are at least measuring their pension risk more often,” said Vandersanden.
In addition, in terms of investment changes, there are
two dominant strategies: a greater diversification of return-seeking portfolios
(out of Canadian equities and into alternative asset classes and foreign
equities), as well as a net movement towards more liability-driven investment
strategies (liability-matching assets, liability driven investment (LDI)
strategies and dynamic asset allocation).
But, while employers in the U.S. and U.K. are showing
significant interest in delegated investment services that allow them to delegate
all or part of the investment process, this is still a new concept in Canada,