Pension stability improving, regulator says

The number of federally registered private pension plans reporting a deficit appears to have “stabilized,” but the Office of the Superintendent of Financial Institutions warns in its annual report that the situation remains fragile.

In the 92-page report, OSFI say it is watching a “handful” of the 1,300 plans it supervises that have a funding shortfall of “significantly more than 10%.” Over 2005-2006, OSFI reports a 10% increase in the number of private pension plans on its watch list, from 77 at the start of the fiscal year to 86 (67 were defined benefit plans and 19 defined contribution plans).

The OSFI report says that some plans remedied their problems and were removed from the list, some after the intervention from the federal pension regulator. Although the office aims to protect private pension plans and strives to protect benefits, OSFI notes that some solutions may result in the loss of benefits to members.

According to the report, OSFI says it met with underfunded pension plans that continued to take contribution holidays. In those meetings, OSFI says it took steps ranging from strongly encouraging plan sponsors to cease the contribution holidays to requiring enhanced notification to members and requesting early valuation reports.

Despite the increase in the number of plans in distress, 75% of Canadians thinks their private pension fund will be able to pay their benefits at retirement. Members of defined benefit plans are the most confident about their plans, with 82% saying they believe their plan will be able to pay their benefits.

Also of note, OSFI reports that 34% of the plans that offer defined benefits increased the amount of pensions being paid out to retirees, up from 28% the previous year. The report also notes that of these plans, 23% also increased deferred pensions.

Almost one-third of the plans that made adjustments to pensions during the last fiscal year did so using surplus funds or gains, down slightly from the previous year. The report says the remainder used sources outside the pension fund, created unfunded liabilities, or used some combination of options to improve pensions.

In one-quarter of the cases, pension plans used surpluses or gains to improve benefits, but in three-quarters of plans, the employer reduced contributions through the use of surpluses or gains.

In total, the pension plans and the 450 financial institutions supervised and regulated by OSFI manage about $2.875 trillion of assets, up $155 billion from the previous fiscal year.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com