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Federally Regulated Private Pension Plans

OSFI conducts risk assessments of pension plans covering employees in federally regulated areas of employment; provides timely and effective intervention and feedback; employs a balanced relevant regulatory framework; and manages a prudentially effective and responsive approvals process.

Private Pension Environment

Financial challenges continued throughout 2009 for private pension plans, along with intensive public debate about retirement income issues. Going into 2010, markets recovered some of their 2008 losses, but long-term interest rates remained low. Nevertheless, at year-end 2009, the solvency position of federally regulated defined benefit pension plans had improved modestly from the record lows of year-end 2008.

The global financial market turmoil of 2008 and economic slowdown that followed drew attention to the pressures on pension plans in a volatile environment. The Government of Canada responded with both temporary funding relief for defined benefit plans and a country-wide consultation on enhancing the legislative and regulatory framework for federally regulated private pension plans. This consultation led to the October 2009 announcement of reforms to the framework, and the subsequent tabling in Parliament of a number of amendments to the Pension Benefits Standards Act, 1985 (PBSA) in late March 2010.

Continuing uncertainty in the environment highlighted the importance of effective risk management by pension plan administrators. Accordingly, in 2009 OSFI surveyed a number of pension plans about their stress testing practices (see Ad hoc Reviews later in this chapter).

In an innovative effort to remain responsive to stakeholders, OSFI held its first pension industry forum in Toronto in February 2010. Over 120 plan administrators and other pension professionals attended. Participant evaluation of this forum was both positive and useful, and will help guide future communications with the industry.

Monitoring

As at March 31, 2010, 1,398 private pension plans were registered under the PBSA, covering over 637,000 employees in federally regulated areas of employment, such as banking, inter-provincial transportation and telecommunications. Between April 1, 2009 and March 31, 2010, plan assets increased by 12%, to a value of approximately $123 billion. (See figure 13)

OSFI regulates approximately 7% of pension plans in Canada, according to Statistics Canada data as of January 2009. The majority of pension plans in Canada are under provincial regulation, representing 5.4 million employees with total assets of $911 billion.

The most current pension plan financial statements filed during the 12-month period ending March 31, 2010 report that 52% of pension assets are invested in equities, 40% in debt instruments and 8% in diversified and other assets.

On average, private pension plans under federal regulation recorded a 13% return on their investments, a significant improvement on the -16% average return reported in the previous fiscal year.

The average estimated solvency ratio (ratio of assets over liabilities on plan termination basis) for all plans was 0.90 at December 31, 2009 (up from 0.85 at the previous year end). Estimated solvency ratios calculated by OSFI, using data available at year-end 2009, showed that approximately 76% of all defined benefit plans supervised by OSFI were underfunded (an improvement from 83% in 2008), meaning their estimated liabilities exceeded assets, on a plan termination basis. Of particular note, the percentage of plans with an estimated solvency ratio of less than 0.80 (considered materially underfunded) came down from 43% to 15% at year-end 2009.

Federally Regulated Private Pension Plans by Type (last 4 years)*

FIGURE 13
  2006-2007 2007-2008 2008-2009 2009-2010
Total Plans
1,332 1,350 1,379 1,398
Defined Benefit 359 351 349 359
Combination 89 95 98 100
Defined Contribution 884 904 932 939
Total Membership
582,000 594,000 612,000 637,000
Defined Benefit 386,000 391,000 357,000 379,000
Combination 98,000 99,000 139,000 137,000
Defined Contribution 98,000 104,000 116,000 121,000
Total Assets
$130 billion $132 billion $109 billion $123 billion
Defined Benefit $108 billion $109 billion $81 billion $89 billion
Combination $19 billion $19 billion $25 billion $30 billion
Defined Contribution $3 billion $4 billion $3 billion $4 billion

*as at March 31st

As at March 31, 2010, there were 1,398 private pension plans registered under the Pension Benefits Standards Act, 1985, covering over 637,000 employees.