A bill intended to provide defined benefit pension plan members with super-priority should be a major concern for Canadian DB plan sponsors, according to LifeWorks Inc.’s latest monthly pension indices report.
“While the goal of [Bill C-228] is to protect the pensions of members and retirees in the event of a company’s insolvency, it could have adverse consequences for certain companies that sponsor DB pension plans,” said Gavin Benjamin, a partner in LifeWorks’ pension and benefits solutions business, in the report.
Read: Pension super-priority bill passes in House of Commons
Last month, Bill C-228 was passed by the House of Commons in a unanimous vote. It’s now being considered by the Senate, with the upper house expected to pass it before the end of the year. According to the report, the bill would make borrowing more difficult for sponsors of DB pension plans with large deficits or other significant risks. Similar concerns have also been raised by the Association of Canadian Pension Management and the Pension Investment Association of Canada.
“Therefore, plan sponsors should assess the implications of Bill C-228 in the event that the bill becomes law, including the potential need to revise the funding and investment strategies for their pension plans,” said Benjamin.
The report also found DB plans’ median solvency index rose 3.7 per cent from 103.2 per cent to 106.9 per cent, its highest point for the year.
Read: ACPM warns of ‘unintended consequences’ of pension super-priority bill
Median assets increased 5.2 per cent over the month, with gains driven by a partial rebound in equity markets and a decrease in bond yields. However, the report noted despite these gains, median asset values remain 9.4 per cent below their value at the beginning of the year.
The Canadian equity index finished the month at 5.5 per cent, while the MSCI ACWI global developed and emerging equity markets index saw returns of 7.1 per cent. Returns for Canadian bond indices were also positive as yields decreased. For Canadian government bonds, short-term bond yields fell 0.03 per cent and long-term yields fell 0.31 per cent.
The median funding level dipped from 104.7 per cent to 104.2 per cent, while median pension expenses rose from 47.3 per cent to 57.2 per cent.
Read: PIAC reiterates objections to pension super-priority bill
“Most pension plans are in good financial health as we approach the end of 2022,” said Benjamin. “However, there are still many risks that should be top of mind for sponsors, such as the potential for financial market surprises, as they consider their DB pension risk management strategy for 2023 and beyond.”