Median DB pension solvency up in 2019, FSRA monitors coronavirus impact

While the overall financial state of Ontario’s defined benefit pension plans improved in 2019, the Financial Services Regulatory Authority of Ontario continues to monitor fluctuations caused by the ongoing coronavirus pandemic.

In the FSRA’s new report, it projected the estimated going-concern and solvency funding positions of the province’s DB plans to a common year-end date. The estimated median going-concern funded ratio at Dec. 31, 2019 reached 115 per cent, compared to 105 per cent in 2018. On a solvency basis, the FSRA found the median projected solvency ratio was 98 per cent as at Dec. 31, 2019, compared to 94 per cent as at Dec. 31, 2018.

Read: Ontario releases more details on funding cushion in new DB framework

Following the establishment of a new funding framework for DB pension plans on May 1, 2018, the FSRA said 759 plans (about 62 per cent) have transitioned to this new model, which required the funding of a provision for adverse deviations. The number of plans identified as closed and open for purposes of determining the PfAD were 584 and 175, respectively, with a median PfAD of 9.9 per cent for all of these plans.

The report also said there was a ‘clear shift’ in the proportion of plans that used higher going-concern interest rate assumptions under the 2018 funding regime compared to those under the previous model, presumably in response to the inclusion of the PfAD.

While there was very little change year over year in the typical asset allocation of pension funds between fixed income and non fixed income, single-employer pension plans and multi-employer pension plans showed an increase in assets allocated to fixed income, while certain large jointly sponsored pension plans lowered their fixed income allocation.

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The report also showed a shift away from equity across the board, with a decrease in allocation percentages of four to six per cent and an increase in real estate investments across all types of plans. In addition, allocations to alternative investments increased significantly among listed JSPPs with modest reversals for SEPPs and MEPPs.

As well, the number of SEPPs in Ontario decreased by 134 compared to the 2018 report, mainly due to plan windups and asset transfers such as plan mergers, the FSRA report said. It also noted membership in all types of SEPPs had decreased between 2018 and 2019, while membership in MEPPs and listed JSPPs increased, which it attributed to both the reduction of SEPPs and the closure of DB provisions for some ongoing plans.

Finally, in a supplemental quarterly update, the FSRA said that, due to fluctuations related to the coronavirus pandemic, estimated median solvency fell to 85 per cent as at March 31, 2020 and partially recovered to 90 per cent as at June 30, 2020, while equity markets also posted a strong rebound. It said economic disruptions have affected all pension plans to varying degrees.

And while the estimated minimum required contributions for 2020 are currently $17.4 billion (a decrease of about four per cent from the 2019 level), if many administrators file valuation reports that reflect the generally strong funded position at the end of 2019, the FSRA said the actual required contributions for 2020 could be substantially less.

Read: FSRA estimating jump in DB pension solvency off rebound in markets