Plan sponsors might re-think changing plan designs
Rising stock markets and a modest increase in bond yields have restored pension funding in Canada to the highest level in almost five years, according to a recent report.
An analysis by consulting firm Watson Wyatt has found that the pensions funded ratio (the ratio of plan assets to plan liabilities) for a typical pension plan increased to 98 per cent at the end of first quarter of 2007. This is up from 86 per cent at the beginning of 2006.
"These improving funded ratios will be welcomed by CFOs,” said Ian Markham, a senior consultant and director of pension innovation at Watson Wyatt. “Smaller deficits will mean a lesser impact on company balance sheets.”
Under proposed new accounting rules released on March 29, most companies will have to report pension fund deficits directly on balance sheets by Dec. 31.
Just a few years ago pension plans were facing a much different situation. In 2002, stock markets and bond yields, which are used to determine liabilities, were falling. As a result, many pension plans were under-funded.
“The big focus of plan sponsors in the last few years has been managing volatility in costs and many have considered changes in plan design,” said David Burke, retirement practice director of Watson Wyatt’s Canadian offices.
“While this spotlight will continue, improvement in pension funding will give plan sponsors some room to pause for reflection and consider other aspects of their retirement decisions, including the human capital risks of altering plans.”
An analysis by consulting firm Watson Wyatt has found that the pensions funded ratio (the ratio of plan assets to plan liabilities) for a typical pension plan increased to 98 per cent at the end of first quarter of 2007. This is up from 86 per cent at the beginning of 2006.
"These improving funded ratios will be welcomed by CFOs,” said Ian Markham, a senior consultant and director of pension innovation at Watson Wyatt. “Smaller deficits will mean a lesser impact on company balance sheets.”
Under proposed new accounting rules released on March 29, most companies will have to report pension fund deficits directly on balance sheets by Dec. 31.
Just a few years ago pension plans were facing a much different situation. In 2002, stock markets and bond yields, which are used to determine liabilities, were falling. As a result, many pension plans were under-funded.
“The big focus of plan sponsors in the last few years has been managing volatility in costs and many have considered changes in plan design,” said David Burke, retirement practice director of Watson Wyatt’s Canadian offices.
“While this spotlight will continue, improvement in pension funding will give plan sponsors some room to pause for reflection and consider other aspects of their retirement decisions, including the human capital risks of altering plans.”
