Funded positions of Canadian plans unsteady in 2008
Following major improvement in 2006 and 2007, there has been little net change but significant volatility in the GAAP (generally accepted accounting principles) funded positions of Canadian pension plans over the first half of 2008, says Watson Wyatt Worldwide, a consulting firm.
Reflecting a sharp decline in equity markets early in the year, typical pension fun-ded ratios dropped three percentage points from 106 per cent to 103 per cent in the first two months of 2008. This was followed by an eight-percentage-point gain from March to May and another four-percentage-point drop to 107 per cent in the month of June, said Watson Wyatt.
“While pension funding levels were slightly better at the end of June than at the end of 2007, they remain highly volatile,” said David Burke, retirement practice director of Watson Wyatt’s Canadian offices. “Moreover, the small net improvement in funded ratios in 2008 must be attributed to further increases in the yield rates available on AA Corporate Bonds rather than stock markets, and there is a very real possibility that this trend in yields could reverse.”
Plan sponsors must proactively manage pension risk, said Carl Hess, Watson Wyatt’s global director of investment consulting.
“With volatility in financial markets likely to continue throughout this year, sponsors can seek more stability with liability-driven investment strategies that align the movement of plan assets and liabilities.”
