The largest Canadian corporate pension plans are now nearly fully funded, and some plans are beginning to take steps to de-risk, according to a report.

The Russell Investments Canada report Enterprise Risk in Canada reviewed financial data for what it refers to as the $2 Billion Club, consisting of the 25 Canadian-listed corporations with pension obligations in excess of $2 billion.

“By analyzing these corporations, which represent 50% of all corporate pension liabilities in Canada, we gain critical insight into how Canadian corporations are managing their plans, including hard data on changes in funding status as well as changes corporations are making to their investment strategies to take advantage of their improved funded status,” says Kendra Kaake, a senior investment strategist with Russell Investments and co-author of the report.

Key findings from the study also show the following:

  • overall financial health for the $2 Billion Club improved, as aggregate funded status increased from 86% in 2012 to 97% in 2013;
  • the surplus position for the $2 Billion Club went from a $21-billion deficit to a $5-billion deficit in 2013, representing a nearly 80% decrease in combined shortfall; and
  • after adjusting for cash flows, the group experienced double-digit returns, on average, in 2013.

Canadian pension plans have benefited from a favourable market environment in recent years as reflected in the general health of the $2 Billion Club,” she adds.

“And some of the largest plans in Canada are taking this opportunity to find ways to de-risk their plan or adjusting their multi-asset allocation mix or funding strategies to take some future liability risk off the table,” Kaake explains. “We see the trend toward de-risking, which has been quite prevalent in the U.S. in recent years, continuing to gain traction in Canada.”

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