Employers forced to cough up more as pension assets decline

(June 11, 2003) Registered pension plans (RPPs) lost nearly $4 billion last year as stock prices declined, forcing employers to significantly increase their contributions, Statistics Canada reported today

RPPs had revenues of $13.7 billion and expenses of $15.3 billion in the fourth quarter of 2002, resulting in a $1.6 billion loss. For the year, the losses reached $3.8 billion, compared to a $57.2 billion profit in 2000.

“Funds had a negative cash flow [in 2002] because they sold stocks at a price lower than what was originally paid in an effort to rebalance their portfolios towards bonds,” the agency said.

In 2000, the average registered pension fund was invested 42% in stocks, 36% in bonds and 4% in real estate. By 2002, the allocation had changed to 38% stocks, 37% bonds and 6% real estate.

Plan assets were worth a total of $543.8 billion at the end of 2002, down from a peak of $614.4 billion in the third quarter of 2000.

For many pension funds, the declines halted an employer “contribution holiday” that in some cases lasted up to four years, StatsCan said.

For 2002, employer contributions to pension plans totaled $12.6 billion, compared to $7.3 billion in 2000, a 72% increase. “Employer contributions are expected to remain high throughout 2003,” the agency added.

Registered pension plan assets represent about 71% of total retirement savings in Canada. Of those RPP assets, about 73% are invested in the financial markets through trusteed pension funds.

Last month, the Office of the Superintendent of Financial Institutions revealed that 15% of the 370 pension plans it oversees are “on watch.” And OFSI superintendent Nick Le Pan warned that the federal regulator cannot guarantee that benefits will be met in all cases.

“There is no silver bullet for dealing with shortfalls,” Le Pan said, noting that underfunded plans can either erase the deficit with higher contributions, or cut plan provisions.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca