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Member, Beacon International Group, Ltd.
TORONTOThe financial health of Canadian pension plans continues to deteriorate, reaching its lowest level in the first quarter of 2005, according to a pension index released by Mercer Human Resource Consulting.
The index shows the ratio of pension assets to liabilities of Canadian plans at 80% at the end of the first quarter, just below the record lows seen in 2003.
In addition to the usual culprit of declining long-term interest rates, most Canadian pension plans were negatively affected in the first quarter by new rules for determining the lump-sum value of pension entitlements that became effective in February, said Paul Purcell, retirement leader at Mercer based in Toronto. "It had a pretty big impact on Canadian pension plans," Mr. Purcell said.
Without the new methodology, which was updated to reflect longer life expectancies and to align pension plan interest rates with actual rates in the marketplace, Canadian pension plans "would have declined, but not by nearly as much," Mr. Purcell said.
The continued weakness of Canadian pension plans means employers will have to contribute more cash to meet funding requirements, he said. A Mercer study estimated that more than 70% of Canadian pension plans were less than fully funded at the end of 2004.
The Mercer report is produced based on pension plan data the company keeps and is updated quarterly. It can be found at www.mercerhr.ca/knowledgecenter/reportsummary.jhtml/dynamic/idContent/1178210;jsessionid=JRCPALUDG0VZACTGOUGCIIQKMZ0QYI2C.