Towers Watson DB Index Shows Canadian Pensions Suffered

January 4, 2012 ( - The combined effects of poor investment returns and decreasing interest rates during 2011 caused the Towers Watson DB Pension Index to fall 16.2%.

Based on data collected by Towers Watson, this would mean the typical Canadian defined benefit plan, which was 86% funded on an accounting basis at the start of 2011 (the median of a database of companies being tracked by Towers Watson), will find itself at only 72% funded at the end of the year, unless the plan sponsor has made additional contributions during the year to shore up the plan’s financial health.  

The typical 60%/40% allocation of pension plan assets to stocks and bonds used for the Pension Index would have only generated 0.5% returns over 2011, while pension plan liabilities would have increased by close to 20% due to the decline in interest rates over the same period.  

Roland Pratte, a senior investment consultant at Towers Watson said, “DB plan sponsors are acutely aware of the downward trend in interest rates, and potential volatility in the stock markets. In response, many have already taken steps to reduce the size of their DB pension liabilities. For 2012, plan sponsors should continue to work on managing their pension financial risks with focus on both the investment and plan design fronts, and paying careful attention to their ongoing plan funding strategies.”  

The Towers Watson DB Pension Index tracks the performance of a hypothetical DB pension plan that was fully-funded in the plan sponsor’s financial statements at the end of 2000.