Canadian DB pension plan sponsors appear more committed to maintaining DB plans than sponsors in the U.S. and the U.K., according to the 2011 Global Pension Risk Survey from Aon Hewitt.
Of the 630 plan sponsors that responded to the third annual survey, 106 were from Canada, and 68% of those were from the private sector. While 39% of Canadian respondents had closed their DB plans for existing members, the figure was close to 80% in the U.S. and the U.K.
When asked why they continue to offer DB plans, Canadian sponsors identified three primary reasons:
- a DB plan aligns with the organization’s total rewards philosophy (26%);
- union pressure (21%); and
- competitive issues (15%).
“These are all good reasons for staying with a DB plan,” said Tom Ault, a senior retirement consultant with Aon Hewitt. “The accommodating response of regulators to the funding crisis makes it possible to maintain these plans. However, to keep DB feasible for the long term, organizations are considering the risk management strategies available to them.”
The number of Canadian respondents who indicated they have no long-term strategy for their plans has dropped substantially, from 44% a year ago to just 25% today, and the majority of those with a strategy are primarily focused on risk reduction.
“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,” indicated Janet Julé, a principal with Aon Hewitt. “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 making plan design modifications, as well as changing investment policy—increasing diversification out of Canadian equities and intermediate bonds and shifting to global equities, long bonds and alternatives. In addition, organizations are taking another look at their funding policy and contribution strategy.
Dynamic investment policies also appear to be increasing in prevalence. While 5% of respondents said they have already implemented some form of dynamic policy, another 19% said they intend to do so over the coming year.
Ault said that regardless of what strategy a DB plan chooses, it’s important to remember that effective pension risk management includes measuring success, by regularly reviewing plan assets, liabilities and funded status. According to the survey, the number of plan sponsors that monitor their pension risks on a regular basis continues to increase. In 2009, 45% of respondents indicated they were monitoring pension risks. This increased to 57% in this year’s survey.
Due to the demands that effective pension risk management place on a plan sponsor’s resources, a growing number of survey respondents indicate they will look to delegate more of their investment management processes to a third party. The number of sponsors indicating they had or were likely to delegate implementation of their entire investment policy jumped from 20% in 2009 to 37% this year.
To received a copy of the survey, contact info@aonhewitt.com.