Pension Worries on the Rise for Canadian DB and DC Sponsors

March 1, 2012 (PLANSPONSOR.com) – Sixty-five percent of Canadian defined benefit (DB) plan sponsors believe that Canada is experiencing a pension crisis that will be long-lasting and likely to worsen in the next 12 months. 

The Towers Watson’s 2012 Pension Risk Survey results show that DB and defined contribution (DC) pension/Capital Accumulation (CAP) respondents are also concerned about ensuring adequate retirement income for their plan members when a pension plan re-design is underway. More than 70% of DC/CAP survey respondents anticipate that CAP-related litigation will increase in the coming years, citing inadequate retiree income as a key factor.

In response to the on-going funding crisis, more than half (54%) of DB respondents indicate they are currently planning or considering investment strategy changes, typically to de-risk their portfolios. In contrast to prior years when plan sponsors were more focused on seeking higher returns, 53% of 2012 respondents (compared to only 36% in last year’s survey) appear willing to accept lower returns in favor of reduced risk.

As the funded status of DB plans continues to decline, pension funding reform is increasingly important to survey participants. When asked to identify their main concerns in regard to pension legislation, funding issues top the list, with a majority of respondents citing permanent extension of amortization periods (59%) and extensions to temporary funding relief (57%) as being within their top three priorities, followed by calls for greater harmonization of pension legislation across Canada (49%).

Plan design changes appear to be a somewhat less viable de-risking tactic for employers, with only 2% of current private sector DB plan sponsors expecting to switch to a DC/CAP arrangement for new hires in the next 12 months. Eight percent of respondents are considering this move in the future.

Regardless of plan type or sector, the majority of survey participants (72%) agree that their employees are more concerned about pensions now than they were 24 months ago. Mirroring this anxiety, the survey confirms that many plan sponsors feel the same.

These findings are part of Towers Watson’s 2012 Pension Risk Survey of Canadian pension plan sponsors, and contains insights from senior executives at 115 organizations. 

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