Ontario DB plan finances ‘improved slightly’ as net deficit hits $27B: FSCO

Despite market volatility, Ontario’s defined benefit pension plans have reported a slight improvement in their financial position in recent years, according to the Financial Services Commission of Ontario.

In its newly released 2015 report on the funding of 1,283 defined benefit pension plans, the regulator found “the funded position of pension plans improved slightly” in comparison to its findings the year before. The median funded ratio on a going-concern basis increased to 106 per cent from 105 per cent the year before. On a solvency basis, the median funded ratio increased to 93 per cent from 92 per cent. The plans, exclusive of certain plans such as seven large public sector ones, had a net solvency deficit of almost $27 billion for the valuation period covered by the latest report.

Read: Canadian pension solvency ratio down in February: survey

It’s important to note that the numbers come from actual information from reports filed with FSCO with valuation dates between July 1, 2012, and June 30, 2015. Despite the lack of a common date, FSCO also made a projection of the median solvency ratio as of Dec. 31, 2015. On that basis, it estimated the ratio had fallen to 83 per cent at the end of 2015 from 88 per cent on Dec. 31, 2014.

Adding to the mixed results, the latest report showed a decrease in plans that were less than fully funded. On a going-concern basis, 31 per cent of the plans were less than fully funded, down from 36 per cent in 2014. On a solvency basis, 75 per cent were less than fully funded, down from 77 per cent the year before.

The latest report contains lots of interesting numbers for those who pay attention to pensions. The average interest rate assumption used in going-concern valuations, for example, decreased to about 5.1 per cent from slightly more than 5.5 per cent over the period from July 1, 2011, to June 30, 2015.

The report also shows an evolving asset mix with plans increasing their stakes in alternative investments over time. Their share increased to 5.6 per cent in 2014, up from just 1.9 per cent in 2007. Real estate saw a smaller increase to 1.7 in 2014 from 1.1 per cent in 2007. Bonds have increased over time (to 41.8 per cent in 2014 from 36.1 per cent in 2007) while equities have seen their share decline (to 48 per cent in 2014 from 56.6 per cent in 2007. The largest plans — those over $1 billion — had greater allocations to alternatives (7.4 per cent) in comparison to their smaller counterparts under $10 million at just 1.3 per cent. The average return for all plans for the monitoring cycle covered by the report was 11.8 per cent.

Read: Ontario pension solvency down at the end of 2015