The State of Defined Benefit Pension Plans in Canada: An Update

Motivated by a continuous debate on pension plan shortfalls and a concern for the long-term viability of defined benefit pension plans, CGA-Canada saw a fit to update its estimate of the standing of defined benefit pension plans presented in its 2004 report titled "Addressing the Pensions Dilemma in Canada". Consistent with our initial findings, the issue of under-funded pension plans has become one of the most perplexing financial issues facing business executives, legislators and Canadian pensioners. Some 59% of Canadian defined benefit pension plans continue to be in deficit at December 31, 2004. If we provide for indexation of benefits, that number rises to 96%. It is estimated that the additional funding required to fully fund those deficit plans has grown from $160 billion at the end of 2003 to $190 billion at the end of 2004 (assuming indexation of accrued benefits). While pension underfunding is a challenge, it is more importantly a symptom of deeper problems rooted within the larger pension administration regime. Pension regulators must take a more proactive approach and monitor more closely pension plans that are in a deficit position.