While the going-concern funding levels of Ontario’s defined benefit pension plans have improved slightly, the solvency picture remains stagnant, according to the Financial Services Commission of Ontario.
In its 2016 report on the funding of 1,333 defined benefit pension plans, the regulator found the median funded ratio on a going-concern basis had climbed slightly to 107 per cent in 2016 from 106 per cent in 2015. But on a solvency basis, the median funded ratio was flat at 93 per cent.
The plans also saw an increase in the net solvency deficit to $31.3 billion for the valuation period, up from $27 billion in the 2015 report. The data reflects a three-year period that spans July 1, 2013, to June 30, 2016.
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In its report, the regulator noted that solvency funding relief measures continue to be in place for specified Ontario multi-employer pension plans, certain defined benefit pension plans and some public sector pension plans.
The report also notes Ontario’s defined benefit plans had a projected median solvency ratio of 91 per cent as at Dec. 31, 2016, which compares to 83 per cent at Dec. 31, 2015. Unlike median funded ratios, which reflect information from a three-year period, projected ratios are estimates at a common date.
The percentage of underfunded plans decreased from 2015. On a going-concern basis, 30 per cent of the plans were less than fully funded, down from 31 per cent in 2015. On a solvency basis, 73 per cent were less than fully funded, down from 75 per cent the year before.
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The regulator’s report also gives insight into the asset mix of plans included in the funding analysis. Broadly, fixed-income assets (including cash and bonds) make up 46 per cent of total investments, while non fixed-income assets (including equity, real estate and alternative investments) accounted for 54 per cent of the holdings.
“While there was no significant change to the overall allocation between fixed and non-fixed income, the asset mix of pension funds appeared to be slightly more sophisticated with seven per cent in alternative assets,” the regulator noted.
Pension funds with different asset sizes differ in their allocations, according to the report. Larger pension funds allocated more assets to real estate and alternative investments than smaller plans. Funds with more than $1 billion in assets invest, on average, 13.1 per cent of their holdings in alternatives.
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The report also gives insight on how asset allocations have changed from 2007-15. Pension funds have boosted their exposure to alternatives significantly to 7.2 per cent in 2015 from 1.9 per cent in 2007. Bonds have also risen to 42.4 per cent in 2015 from 36.1 per cent in 2007. Real estate increased slightly to 1.8 per cent in 2015 from 1.1 per cent in 2007.
In contrast, equity exposure decreased to 45.3 per cent in 2015 from 56.6 per cent in 2007. Cash allocation dipped to 3.3 per cent in 2015 from 4.3 per cent in 2007.
The average return for the plans in the monitoring cycle was about five per cent.