Many Canadian companies are reviewing or already have reviewed the design of their pension plans in the wake of what they believe is a pension crisis in this country, according to a new survey.

The survey, released today by The Conference Board of Canada and Watson Wyatt, most Canadian chief financial officers believe a pension crisis exists, but do not see it as permanent.

Still, many of the companies responding said that they are reviewing their pension plan design or have already done so.

The survey, entitled “Is there a crisis? Survey of CFOs on pension plan perspectives, strategies and reactions,” polled 68 CFOs of Canadian organizations representing six public-sector pension plans and 62 private-sector plans totalling more than 20% of private-sector pension assets in Canada.

“We’ve heard a lot of talk about a pension-funding crisis over the past year, particularly because of the problems some rather high-profile companies had meeting their pension obligations,” said Gilles Rhéaume, vice president of policy, Business and society at The Conference Board of Canada. “According to our survey, however, it seems that this crisis will be cyclical in nature. It is fair to say companies are reviewing their pension plan strategies.”

When asked whether a pension crisis exists in Canada, 39% of CFOs said they believe there is a pension crisis in Canada, but that it is largely cyclical and unlikely to become permanent, while 20% believe the problem is likely to remain beyond the next few years. However, 29% do not see the situation as a crisis.

The survey also showed many companies are planning changes to the design of the pension plans. As the result of recent pension plan underfunding, 18% of the survey participants that sponsor defined benefit plans have terminated at least one of their plans or have converted it to a defined contribution arrangement. For another 11%, such a change is either underway or planned. Of the remaining 71% that are staying with their defined benefit plans, one in five are either adding defined contribution elements or cutting back their future benefit levels or early retirement provisions.

“Clearly, plan sponsors are assessing their plan designs in managing their financial risk. But cost volatility is only one of the influences,” said Ian Markham, director of pension innovation with Watson Wyatt Canada. “Another major driver of plan design change is the need to retain talent, particularly to combat the labour shortages that are likely to develop as baby boomers retire.”

The survey also noted that while most CFOs have devoted considerable effort to reviewing their investment risk tolerance and their selection of investment managers, more than 80% are not planning changes to their pension investment strategy.

CFOs also had a number of suggestions about changes to the pension system in Canada. They include:

  • changing tax rules governing pension plans (61%);
  • introducing tax-efficient funding for supplemental executive pension plans or SERPs (57%);
  • improving the balance between the interests of plan sponsors and plan members (45%);
  • changing the minimum requirements for funding deficits (43%); and
  • changing the rules related to the risks and rewards of dealing with plan deficits and surpluses (40%).



The survey, conducted in February and March 2004, polled CFOs of private-sector and public-sector organizations in Canada with pension assets ranging from $2-million to $43-billion.