Double-digit returns and an increase in discount rates put the largest Canadian corporate defined benefit plans on solid financial footing and open the door to asset allocation changes, according to a new report from Russell Investments Canada.
TORONTO, June 11, 2014 /CNW/ - The largest Canadian corporate pension plans are now nearly fully funded and some plans are beginning to take steps to de-risk, according to recent analysis conducted by Russell Investments Canada.
For its recently released report – Enterprise Risk in Canada - Russell reviewed financial data for what it refers to as the $2 Billion Club, consisting of the 25 Canadian listed corporations with pension obligations in excess of $2 billion.
"By analyzing these corporations, which represent 50% of all corporate pension liabilities in Canada, we gain critical insight into how Canadian corporations are managing their plans, including hard data on changes in funding status as well as changes corporations are making to their investment strategies to take advantage of their improved funded status," said Kendra Kaake, a senior investment strategist with Russell Investments and co-author of the report with institutional investment strategist Adam Hornung.
Key findings from the study included:
- Overall financial health for the $2 Billion Club improved, as aggregate funded status increased from 86% in 2012 to 97% in 2013.*
- The surplus position for the $2 Billion Club went from a $21 billion deficit to a $5 billion deficit in 2013, representing a nearly 80% decrease in combined shortfall.
- After adjusting for cash flows, on average the group experienced double-digit returns in 2013.
"Canadian pension plans have benefitted from a favorable market environment in recent years as reflected in the general health of the $2 Billion Club," added Kaake. "And some of the largest plans in Canada are taking this opportunity to find ways to de-risk their plan or adjusting their multi-asset allocation mix or funding strategies to take some future liability risk off the table. We see the trend toward de-risking, which has been quite prevalent in the U.S. in recent years, continuing to gain traction in Canada."
For more information or to download a copy of the report, visit the Russell Investments Canada institutional website.
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*Note that in 2013 pension contributions exceeded the total incremental pension expense (service cost plus net interest cost) by $1B for the group in aggregate. Without those additional contributions the aggregate funded status of the club would have increased to approximately 96%. Based on IAS19 GAAP as of January 1, 2013.
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SOURCE: Russell Investments Canada Limited
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