The first quarter of 2020 was rough for Ontario defined benefit pension plans as they experienced the most significant quarterly decline in projected solvency ratios since December 2009, according to a new report by the Financial Services Regulatory Authority of Ontario.
In particular, the median projected solvency declined to 85 per cent as of March 31, 2020, compared to 99 per cent at the end of 2019. In addition, only 14 per cent of pension funds are projected to be fully funded on a solvency basis at the end of the quarter, while 51 per cent are projected to have solvency ratios below 85 per cent.
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The hit on estimated median solvency ratios was driven by negative investment returns, which led to significant declines in market values, combined with decreasing discount rates, pushing solvency liabilities up, said the report.
The shock to capital markets and the economy is presenting challenging conditions for many pension plans and companies, it noted. “This is a cogent reminder of the importance for plan fiduciaries to have a solid understanding of the key risks facing the plans they are responsible for, their impact under a number of scenarios — positive and negative shocks — and having a good plan in place to respond to these risks.”