The Plan's rate of return was 0.2 per cent in 2011, lower than the 0.8 per cent benchmark due to a tumultuous year in the global markets. Lower discount rates increased the Plan's estimated solvency deficit at the end of 2011.
OTTAWA, April 5, 2012 /CNW/ - The Canada Post Pension Plan (the Plan) ended 2011 with total net assets available for benefits of $15.431 billion, an increase of $73 million from 2010. The Plan was able to show a modest investment return of 0.2 per cent after a tumultuous year with significant declines in the global financial markets.
The Plan is one of the largest single employer pension plans in Canada, with nearly 85,000 active members, pensioners, deferred members and beneficiaries. It is an important element of Canada Post employees' total compensation package.
"Throughout a very challenging year of declining markets and lower discount rates, the Plan continued to focus on the long-term view and to position itself to take advantage of future growth opportunities. In 2011, we added to our real estate investments and entered new markets such as infrastructure and emerging markets. We expect that this will allow the Plan to increase investment returns without increasing volatility and risk," said Douglas Greaves, Vice-President, Pension Fund and Chief Investment Officer. "The pressures in 2011, however, meant that the Plan's estimated solvency and going-concern deficits worsened significantly."
Discount rates, the long-term interest rates used to calculate pension obligations, are at historically low levels. They declined further in 2011, causing an increase in pension obligations that exceeded the Plan's investment returns. As a result, the Plan's solvency shortfall to be funded increased from $3.204 billion as at the end of 2010 to an estimated $4.672 billion, representing a solvency ratio of 79 per cent as at the end of 2011. On a going-concern basis, the shortfall to be funded of $175 million at the end of 2010 increased to an estimated $423 million, for a going-concern funded ratio of 97 per cent as at December 31, 2011.
Canada Post is not alone in this regard. At the end of 2011, 94 per cent of pension plans in Canada had solvency shortfalls, with an average solvency ratio of 79 per cent. To help deal with this situation, the government of Canada changed the pension legislation. The changes allow pension plans subject to the Pension Benefits Standards Act, 1985 to reduce their special solvency payments after meeting certain conditions. Canada Post received approval to use these relief measures and reduced its special solvency payments by $433 million. As a result, the company made special payments of $219 million on top of regular current service cost contributions in 2011. It will request permission to use the special relief measures again in 2012. As the Plan sponsor, Canada Post is fully responsible for funding any Plan deficits.
An actuarial valuation will be filed with the federal pension regulator by June 2012.
The sustainability of the Plan is directly linked to the financial sustainability of the Plan sponsor, Canada Post.
"The Board of Directors and management will pursue necessary changes to ensure Canada Post, the sponsor of the Plan, remains financially sustainable," said President and CEO Deepak Chopra. "Canada Post must continue to be a healthy, viable and profitable company in order to provide the strongest possible foundation for a sustainable pension plan."
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