Pension

(April 28, 2004) The majority of people charged with overseeing Canadian pension plans agree that they may be in crisis, but many feel the problems will be short-lived, according to a survey released today by the Conference Board of Canada and Watson Wyatt.

“We’ve heard a lot of talk about a pension-funding crisis over the past year, particularly because of the problems some rather high-profile companies had meeting their pension obligations,” said Gilles Rhéaume, vice-president of policy, business and society at the Conference Board of Canada. “According to our survey, however, it seems that this crisis will be cyclical in nature. It is fair to say companies are reviewing their pension plan strategies.”

The survey found 39% of CFOs agreed there was a crisis, but that the problems were cyclical in nature and could be rectified. Only 20% of CFOs thought there were serious, long-term problems with pension plans, while 29% did not think there was a crisis at all.

Of those who sponsor defined benefit plans (DB), 18% have either terminated the plan or converted it to a defined contribution plan (DC). Another 11% said they were in the process of doing so.

Of those sticking with the DB plans, 20% said they would be adding DC elements to the plan, cutting back on future benefits or early-retirement options.

But a slash-and-burn mentality must be tempered by the need to attract and retain skilled employees, according to Ian Markham, director of pension innovation with Watson Wyatt Canada.

“Clearly, plan sponsors are assessing their plan designs in managing their financial risk. But cost volatility is only one of the influences,” he said. “Another major driver of plan design change is the need to retain talent, particularly to combat the labour shortages that are likely to develop as baby boomers retire.”

But despite apparent dissatisfaction with the current state of pension plans, 80% of plan sponsors said they would stick with their current investment strategy. At the same time, they appear to be devoting more effort to understanding both their current and future plan liabilities.

CFOs aren’t the only ones getting familiar with plan obligations. Over 40% of respondents said they had received inquiries into the health of their plans by financial analysts studying their company.

“Analysts are starting to tune into the fact that pensions can significantly affect the financial situation of a company, and they are paying closer attention, particularly to those companies with funding issues,” said Rhéaume. “However, while the survey shows that there is a significant increase in the flow of pension information to boards of directors and plan members, the analysts’ concerns have had relatively little impact on the level of disclosure being provided to them by plan sponsors to date.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com