Are your clients' pensions in the 'Danger Zone?'

If your clients expect to partly rely on a defined benefit pension, they may want to set aside a little more of their own money. Many of Canada's top corporations have dangerously underfunded plans; find out which are worst.

Are your clients' pensions in the 'Danger Zone?'

Do your clients expect to partly rely on a defined benefit pension? If so, they may want to set aside a little more of their own money for retirement. Many of Canada’s top corporations have pension plans that are dangerously underfunded.

Canadian ratings agency DBRS has issued an alert on defined benefit pensions after a review of 461 global pension funds, saying that last yea,r most had passed into the “danger zone” of being less than 80% funded.

The agency said the aggregate funded status hit an all-time low of 78.3% in 2012. This precarious situation was largely attributable to an explosion in plan obligations, while good asset returns, combined with employer contributions, helped mitigate the extent of the deficit.

While the deterioration of fund status is concerning, the agency said it shouldn't necessarily be a cause for panic, as it has been largely driven by low interest rates and may correct if rates rise.

“Should interest rates rise by 150 basis points from 2012 levels, the pension problem could rapidly go away,” said James Jung, senior vice president at DBRS. “As of mid-2013, interest rates have already started to climb and are almost halfway home. Furthermore, under a less dramatic scenario with reasonable market returns and modest interest rate growth, DBRS forecasts that fully funded status could be achievable by 2014.”

The study also found that Canadian plans have a higher funded status than US and other internationals in the sample set reviewed. The aggregate funded status of Canadian plans was higher at 84.4%, which is safely above the agency’s 80% threshold. Only 12 plans were below 70%, and all were above the 55% funding level.

While most Canadian plans were outside the danger zone, the report identified the ten-best and ten worst plans in Canada.

For a lists of the worst-funded and largest deficit Canadian funds visit p.2



Ranked by a Percentage Funded Basis, the bottom 10 are:

Magna International 55.4%

Catalyst Paper Corporation 60.3%

Canadian Oil Sands Trust 62.1%

Barrick Gold Corporation 63.1%

Agrium 64.6%

Talisman Energy Inc. 67.4%

Norbord Inc. 67.7%

Toromont Industries Ltd. 68.0%

Emera Inc. 68.3%

Suncor Energy Inc. 68.7%


Ranked by absolute funding deficit, the bottom 10 are:

Ontario Power Generation ($3.3 billion deficit)

Air Canada ($3.2 billion deficit )

Hydro-Quebec ($2.76 billion deficit)

Bombardier Inc. ($2.55 billion deficit)

Imperial Oil Limited ($2.2 billion deficit)

BCE ($1.8 billion deficit)

Resolute Forest Products (1.5 billion deficit)

Hydro One Inc. ($1.5 billion deficit)

TELUS Corporation ($1.36 billion deficit)

Suncor Energy Inc. ($1.29 billion deficit)

Saskatchewan Power ($1.1 billion deficit)