CANADA - Canadian private pension funds have hit a "tipping point" with more than half converting defined benefit plans to defined contributions for current or future employees, a Towers Watson survey found.
This is up from 42% in 2008, the consulting firm said. Towers Watson surveyed 150 plan sponsors.
"The financial crisis has caused a shift in plan sponsor attitudes," said Ian Markham Canadian retirement innovation leader at Towers Watson. "This year's survey results show that employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design or investment strategy."
Indeed, the firm found the economic recovery had almost no impact on sponsors' perception of the pension funding crisis. Some 56% think the funding crisis will continue over the long term, compared to 34% in 2008.
The dire predictions are no surprise since many pension funds are dogged with longer life expectancies and low interest rates. Earlier this week, the Ontario Teachers' Pension Plan was able to boast of its strongest investment returns dollar-wise to date of C$13.3bn ($13.9bn) in 2010. Despite this, the pension fund saw a slight increase in liabilities to C$17.2bn from C$17.1bn.
As a result, chief executive Jim Leech (pictured) warned the plan continued to face "severe funding challenges". (Global Pensions; 6 April 2011)
"The 2008 crisis may have been the final straw for senior finance officers," said David Service, director of Towers Watson Investment Services. "While plan sponsors may not be able to afford to make changes right now, many are working on strategies to de-risk or even exit when the financial position of their plans improve."
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