Canadian DB plans have de-risking on their mind, with most sponsors considering plan design changes rather than annuity purchases.
That’s according to Morneau Shepell’s 60-second survey for April 2014.
The survey, which polled 62 DB plan sponsors, reveals that 71% of respondents have already introduced de-risking measures since the 2008 economic crisis. The most popular measure has been to modify DB plan design, which involves cutting back on ancillary benefits, requiring higher member contributions or converting the plan to a DC arrangement.
For 2014, 53% of respondents will be contemplating further de-risking measures—particularly further modifications to plan design.
“It is very significant that more than half the plan sponsors are considering further de-risking measures, given that nearly three-quarters of them have already taken steps to de-risk,” says Fred Vettese, chief actuary of Morneau Shepell. “About 40% of the private sector DB plans in our pension database are already closed to new members, and this percentage will almost surely continue to rise.”
Only one survey participant will be considering annuities as a de-risking measure for 2014. “This was somewhat surprising, given the widespread expectation that many more sponsors would be winding up their pension plans in 2014 and buying annuities,” notes Vettese.
About 42% of the respondents are sponsors of public sector DB plans. According to the survey, the percentage of public sector plan sponsors that are considering de-risking is virtually the same as the percentage for private sector sponsors.
“This was another surprise, since it is commonly thought that de-risking is something employers do only if they are on a glide path to phasing out their DB plans,” Vettese explains. “Clearly, public sector sponsors are just as serious about de-risking as their private sector counterparts, though the measures they take might differ.”
About 34% of survey participants are not planning to take any de-risking measures this year because they think the worst is over for capital markets and de-risking would entail an opportunity cost.
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