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Addressing the Pension Dilemma in Canada

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Author Info

  • Rock Lefebvre

    ()
    (Certified General Accountants Association of Canada)

  • Amar Goomar

    ()
    (Certified General Accountants Association of Canada)

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    Abstract

    The purpose of this paper is to advance understanding of defined benefit pension plans in Canada by focusing on important questions related to the funding, accounting and policy aspects of management of defined benefit pension plans. As well, the paper aims to impart a reasonable estimate of the standing of defined benefit pension plans at December 31, 2003 and to explore potential remedies for consideration by stakeholders inclusive of legislators, regulators, standard setters, employers and members. The analysis shows that at December 31, 2003, 59% of Canadian defined benefit pension plans continued to be in deficit. That number rises to 95% if provided for indexation of benefits. It is expected that an additional $160 billion is required to fully fund those deficits (assuming indexation of accrued benefits). Given that the future prospects of equities market performance are relatively conservative, it is unlikely that stock market returns alone will correct the situation; at least in the short term. On a solvency basis, $15 billion per year will need to be injected into defined benefit pension plans over the next five years to make up for the investment losses. Pension regulators must take a more proactive approach and monitor more closely pension plans that are in a deficit position.

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    File URL: http://ideas.cga-canada.org/WorkingPapers/040601.pdf
    File Function: First version, 2004
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    Bibliographic Info

    Paper provided by Certified General Accountants Association of Canada in its series Working Papers with number 040601.

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    Length: 69 pages
    Date of creation: Jun 2004
    Date of revision:
    Handle: RePEc:cga:wpaper:040601

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    Related research

    Keywords: defined benefit pension plan; funding position of pension plans; household savings; retirement savings; retirement income; household finance; pension accounting;

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