Financial health of Canada’s 25 largest corporate pension plans fell considerably in 2014: Russell Investments Canada

Latest study shows that despite strong investment performance of the $2 Billion Club, a significant increase in liabilities resulted in a 300% rise in the size of plans’ collective shortfall last year

TORONTO, JUNE 16, 2015

The largest Canadian pension plans saw their combined liabilities increase from $154 billion to $179 billion and their overall financial health decline in 2014, according to ‘Enterprise Risk in Canada,’ a recently issued report by Russell Investments Canada.

“Market risk and longevity risk continued to be the two biggest risks to defined benefit pension plans last year,” said Kendra Kaake, a senior investment strategist with Russell Investments and author of the report, which analyzed financial data for what it refers to as the $2 Billion Club – 25 Canadian listed corporations with pension obligations in excess of $2 billion. The study concluded that the continued low interest rate environment and improvements in mortality assumptions were particularly painful for corporate defined benefit plans in 2014.

“Our analysis provides critical insights into what Canadian corporations are doing and how those actions are impacting their funded status,” explained Kaake. “Although these plans had a very good year on the asset side of the equation, with assets increasing some $14 billion in aggregate, they also saw their combined liabilities spike by a combined $25 billion. That means a $5 billion deficit in 2013 became a $16 billion deficit in 2014—a 300% increase in the size of the shortfall.”

The study was conducted using Russell’s Enterprise Risk Report framework and produced several key findings, including:

  • a net decrease in the financial health of the group of 25 companies, with funded status decreasing from 97% in 2013 to 91% in 2014
  • approximately 90% of corporations in the $2 Billion Club adopted new mortality assumptions (CPM-2014 tables published by the Canadian Institute of Actuaries) resulting in a $6 billion impact for those companies – an increase in liabilities of 3-4%
  • unfunded defined benefit obligation (DBO) as a percentage of corporate market capitalization increased from 0.4% to 1.5% (median)
  • unfunded DBO as a percentage of cash flow to operations (CFO) increased from 2.4% to 10% (median)
  • the impact of changes in interest rates in 2014 was significant, with the median discount rate falling from 4.7% to 4.0% and the mean discount rate falling by 0.5%. The net impact was an $18 billion increase in liabilities.

Kaake said that in light of the challenging financial climate, many plan sponsors continue to pursue de-risking solutions to lower the volatility of short-term movements in their plans’ surpluses or deficits, including strategies for reducing their exposure to longevity risk. “Notably, one member of the $2 Billion Club, BCE Inc., announced plans in early 2015 to transfer a portion of pension-related liability risk to an insurance company through a longevity insurance swap,” she said. “We expect pensions to continue seeking ways to reduce risk, and it’s more important than ever for plan sponsors to understand their exposures and align investment strategies with the goals and objectives of the broader organization.”

For more information or to download a copy of the ‘Enterprise Risk in Canada’ report, visit the Russell Investments Canada institutional research page on

About Russell Investments

Russell Investments is a global asset manager and one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm’s core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures to help each achieve their desired investment outcomes.

Russell Investments has more than $344 billion CAD in assets under management (as of 3/31/2015) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell Investments has $2.4 trillion in assets under advisement (as of 12/31/2014). The firm has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell Investments also traded more than $1.7 trillion in 2014 through its implementation services business.

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