Defined benefit(DB)plans may soon be headed back into surplus territory, according to Ian Markham, senior actuary at Watson Wyatt.
Speaking at the 26th annual Watson Wyatt Survey of Economic Expectations forecast in Toronto earlier today, he said: “The typical ratio was 86% funded at the start of the year. Probably by the end of the year, it will find them somewhere around 96%.”
The reason for this increase is partly because of how equity markets have performed and partly because of all the money that has gone into these plans.
However, a return to lower surpluses doesn’t mean plan sponsors will immediately lose interest in switching to defined contribution(DC)plans.
“Perhaps if we move towards surpluses, we might see a little lessening of that,” Markham said. “Although I think it’s fair to say that the lessons of cost volatility will not be forgotten for many, many years.”
Separately, the Watson Wyatt survey released today shows that pension plan sponsors are looking at new approaches and products.
Many respondents indicated their firms are either developing(30%)or considering developing(42%)new products or options for DC plans in light of increasing volatility and shifting attitudes toward risk.
The survey also shows Canada’s economists and portfolio managers expect a mild economic slowdown this year, followed by acceleration in 2008 and beyond.
Canadian GDP growth is expected to be 2.5%, down from the 3% average observed in the past three years.
For the medium term(2008-2011)and long term(2012-2021), growth is expected to rebound to around 3%.
The results of the survey are based on the projections of economists and portfolio managers from 42 organizations, including banks, investment management firms and other corporations.
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