Canadian employers less willing to close DB plans than U.S., U.K.
Despite the challenges defined benefit (DB) pension plans have faced in Canada over the last two decades, Canadian employers that sponsor these plans seem more committed to maintaining them than organizations in the United States and United Kingdom, according to the third annual 2011 Global Pension Risk Survey, conducted by Aon Hewitt.
Thirty-nine per cent of Canadian respondents have closed their DB plans for existing members, compared to close to 80 per cent in the U.S. and U.K., according to the survey of 630 plan sponsors (106 were from Canada).
"There has certainly been a decline in the number of Canadian organizations with defined benefit plans over the years," said Tom Ault, a senior retirement consultant at Aon Hewitt in Vancouver. "Nevertheless, there are more ongoing DB plans, relatively speaking, in this country than there are in other economies"
Canadian sponsors identified three primary reasons for continuing to offer DB plans:
• Alignment with the organization's total rewards philosophy (26 per cent)
• Union pressure (21 per cent)
• Competitive issues (15 per cent).
"These are all good reasons for staying with a DB plan," said Ault. "The accommodating response of regulators to the funding crisis makes it possible to maintain these plans. However, to keep DB (plans) feasible for the long term, organizations are considering the risk management strategies available to them."
The proportion of respondents that have no long-term strategy for their plans has dropped substantially from 44 per cent one year ago to 25 per cent, found the survey.
"Just over half of the respondents this year indicated that their long-term strategy is to reduce risk, most often using a strategy that is tied to the funded status of their plan," said Janet Julé, a principal at Aon Hewitt in Regina. "Typically, organizations expect to achieve their long-term strategy over the next five to 10 years. In many provinces, this timeline ties nicely into the end of the current funding relief period and the five-year amortization of the expected solvency deficiencies that will exist at that time."
Measures that plan sponsors are adopting to reduce risk include plan design modifications and changes to investment policy — increasing diversification out of Canadian equities and intermediate bonds and shifting to global equities, long bonds and alternatives, found Aon Hewitt. In addition, organizations are taking another look at their funding policy and contribution strategy.
The number of plan sponsors monitoring their pension risks on a regular basis continues to increase, found the survey. In 2009, 45 per cent of respondents indicated they were monitoring pension risks but this figure increased to 57 per cent in 2011.
