By David Clarke
As many as 17% of 70 Canadian pension funds with assets of more than C$1 billion are less than 90% funded, and 9% of these large funds are less than 75% funded, according to a new report by Greenwich Associates, Greenwich, Conn.
Solvency ratios have been falling steadily among Canadian funds for the past four years. After hitting 112% in 2000, average pension fund solvency ratios have dipped to 95% by the end of 2003.
To combat the underfunding, Canadian pension funds are increasing their investments in foreign stocks and alternative investments, and hiring new investment managers at an unprecedented pace, according to the Greenwich survey.
"Corporate and public pension plan sponsors in Canada are looking to ensure their ability to generate enough asset growth to raise their solvency ratios to more comfortable levels," said Lea Hansen, Greenwich Associates' Toronto-based consultant. "Provided that their return expectations are valid, the great majority of plan sponsors should be generating enough asset growth to restore funding levels."
The actions taken by Canadian pension plan sponsors to improve solvency ratios, include adjustments to asset allocations, increased investments in hedge funds and other alternative asset classes, and the aggressive hiring — and firing — of investment managers, Greenwich's research showed.
The report examines rate-of-return expectations, actuarial assumptions and trends in investment management fees, and assesses current usage of investment consultants, transition managers and defined contribution plans.