Morneau Shepell's Pension Risk Index Shows Impact of Pension Funds on Corporate Financial Results

TORONTO, Nov. 17, 2011 /CNW/ - Morneau Shepell Ltd, a leading actuarial and risk management consulting firm, has developed the Pension Risk Index to illustrate the potential impact of pension plans on financial results.

"The Morneau Shepell Pension Risk Index allows a plan sponsor to measure the financial risk of its pension plan, compared to those of other companies in the same industry," says Patrick De Roy, Partner and National Leader of the Risk Management Practice for Morneau Shepell. "The sponsor can use this knowledge when shaping the plan's investment or funding policy, or even the plan design."

De Roy says pension plans can have a significant impact on a company's financial health. Any significant deterioration in the plan's financial position could endanger a company's financial stability. The 2008 financial crisis and persisting low interest rates have motivated analysts and rating agencies to increase their scrutiny of pension plans.

The Pension Risk Index, which is updated annually, is the product of a Morneau Shepell study that looked at the impact of pension plans on the financial results of 100 large Canadian public companies. It combines the results of three risk measures:

  • the size of unhedged liability,
  • liquidity, and
  • the pension expense.

"According to the methodology used, each company surveyed receives a score indicating how a change in the plan's financial position impacts the company's financial results," says Yann Lussier, Principal and Risk Management Consultant for Morneau Shepell. "In comparing companies we note that aside from those with average scores, the level of risk varies greatly from one company or sector to another. The industrial products sector is one where companies are most at risk. The sectors least at risk are:

  • energy,
  • consumer staples, and
  • financial services."

To view the Pension Risk Index,

One of the major risks faced by pension plan sponsors is the risk of a mismatch between plan assets and liabilities. Many plans are currently in deficit, with a significant portion of assets invested in equities. However, actuarial liability is measured based on current bond yields.

"Even though an equity-focused investment strategy would make it possible to reduce costs over the long term, the return on equity investments in the short term could be significantly lower than the growth of the actuarial liability. That is what happened so dramatically during the last financial crisis in 2008 and in recent months," says De Roy.

For those companies that face significant risks, policies can be adopted to better protect a company and its shareholders against deterioration in their plan's financial position. This might call for an investment policy where the target asset allocation differs significantly from a typical pension plan's portfolio.

Morneau Shepell

Morneau Shepell is the largest Canadian-based firm offering industry-leading benefits and pension consulting, outsourcing, as well as health and productivity solutions. The company works with clients to develop innovative solutions that integrate with their business strategies to achieve results. Through Benefits and Health Solutions Consulting, Pension Consulting, Health Management, Administration Solutions and Shepell•fgi's Employee Assistance Program, Morneau Shepell helps clients reduce costs, increase employee productivity, and improve their competitive positions by supporting their employees' financial security, health and well-being.

Established in 1962, Morneau Shepell serves over 8,000 clients, ranging from small businesses to some of the largest corporations and associations in North America. With approximately 2,500 employees in offices across North America, we provide services to organizations across Canada, in the United States and around the globe.

Morneau Shepell Inc. is a publicly traded company on the Toronto Stock Exchange (TSX). For more information, visit www.morneaushepell.com.

SOURCE Morneau Shepell Ltd.

For further information:

Jerry Amernic
416 284-0838
jamernic@morneaushepell.com

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