Rattled pension plans kicked hard by financial meltdown
7 hours ago

TORONTO — Canadian pension plans are bleeding billions of dollars of net worth as turmoil in the stock market has clipped about 10 per cent of the funds' value this year.

But investment consulting companies say pensioners collecting from defined-benefit plans don't need to worry since their pensions are secure. But those who are in so-called defined contribution plans may have to pay a bit more to shore up their investments.

Big drops on stock markets in the third quarter pushed down the value of pensions by 8.6 per cent in the third quarter, the largest quarterly drop in a decade, said a survey released Friday by pension services company RBC Dexia.

Year-to-date, RBC Dexia said, the net worth of pensions was down 10.1 per cent and so far the situation doesn't look likely to improve in the fourth quarter.

"It hasn't been pretty - and judging by the performance in October so far, the situation is not getting any better," said Don McDougall, the group's director of advisory services.

Share prices on the Toronto Stock Exchange have lost about a third of their value - or about $600 billion - since the beginning of the year as fears of a global recession and falling prices for oil, metals, grains and other commodities have battered many of the market's blue-chip resources companies.

While only about 40 per cent of Canadians have private corporate pension plans, all Canadians are part of the Canada Pension Plan, whose investment board puts capital into the stock market and numerous other sectors.

Other big pension funds such as the Caisse de depot et placement du Quebec and pension plans for Ontario teachers, municipal workers and B.C. public sector employers are also major players in the stock markets, though they have been trying to diversify their investments to avoid the boom-to-bust cycles on Bay Street.

RBC Dexia is the second investment consulting group this month to report a 10 per cent drop in the value of the assets of pension plans, RRSPs, mutual funds and other investments held by Canadians.

The Mercer Pension Health Index, produced by human resources consulting firm Mercer LLC, said its index was down about six per cent from the end of the second quarter and about 10 per cent for the year so far.

As of Wednesday this week, "it was down another two per cent," said Paul Forestell, retirement profession leader at Mercer.

The index is a theoretical pension plan that was 100 per cent funded at Jan. 1, 1999, meaning assets were equal to liabilities on that date.

RBC Dexia, which studied plans worth more than $340 billion combined, said while pension funds lost ground, they still outperformed the stock market, as they cashed in on investments in more profitable stock sectors, or bonds, private equity and infrastructure.

"Fortunately, most Canadian funds had already trimmed their exposure to resources," said McDougall.

So what does the loss in net worth mean for pensioners collecting a monthly benefit from a defined pension plan, such as the Ontario Teachers' Pension Plan?

Deborah Hanna, with Teachers', said the slump in the markets won't have any impact on pensioners currently collecting benefits.

Under the Ontario Pension Benefits Act "you can't reduce benefits like that retroactively," she said.

"So any pensions already in payment or any benefits already accrued by working teachers can't be changed. It's just benefits that can be built going forward" that could be affected, she said.

Contributions might have to be raised, or inflation indexing cut back, because with pension plans, said Hanna, "it's the long term that matters."

Teachers' won't be reporting the plan's overall financial performance, which it issues once a year, until next spring.

"The bottom line is most pension funds are well into the red," said David Burke, retirement practice director of Watson Wyatt Canada.

"Assuming things stay the way they are, plan sponsor contributions are going to go up a lot."

Said Burke, plan sponsors may either "absord the cost increase," or ask "employees to put in a bit more money" to mitigate the hike.

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