Defined benefit(DB)plans are expected to be in surplus in a few years, according to a Bank of Canada report.
The December edition of the Financial System Review cites a new study by Mercer conducted for the central bank. The study suggests the solvency ratio will be 109% assuming a low rate of inflation continues.
“Of course, to achieve this improvement, many plans that are starting in deficit will be making special contributions over the roughly five-year period,” the report says, “representing a substantial proportion(up to 21%)of their total payroll costs.”
It seems reasonable to assume that, in many cases, this will entail hardship for sponsors.
The report also says that it appears the direct consequences for the Canadian financial system of current pension deficits are not large.
To read the report, click here.
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