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Canadian pension deficits growing: Study

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Large Canadian companies continue to struggle with growing deficits in their defined benefit pension plans despite increasing cash contributions and improving investment returns, a new study concludes.

Pension obligations for 83 of the largest 100 Canadian companies traded on the Toronto Stock Exchange exceeded pension assets by a total of $25 billion Canadian ($21.45 billion) as of Dec. 31, 2005, according to Towers Perrin's sixth annual review of defined benefit pension plan financial disclosures.

The median defined benefit pension deficit for these companies was $67 million Canadian ($57.5 million) last year, rising from a $38 million Canadian ($31.6 million) median deficit in 2004.

Plan deficits rose last year despite higher cash contributions by these companies, the report found. The average cash contribution to pension plans by these companies last year was $72 million Canadian ($61.8 million), up from $59 million Canadian ($49.0 million) in 2004.

In addition, investment returns improved last year with a median 12% balanced fund return for 2005, up from 10.3% in 2004.

Despite the solid investment returns and increased cash contributions, the median funding position for the pension plans of these companies declined to 79.1% last year from 81.9% the previous year because of the continued decline of long-term bond yields, the survey said.

The report, "Trends & Directions in Pension Financial Impact," can be accessed atwww.towersperrin.com/tp/getwebcachedoc?webc=HRS/CAN/2006/200608/2006_Trends_Pension_Financial_Impact_e.pdf.