The Certified General Accountants Association of Canada says 59% of all defined benefit pension plans in Canada are now running deficits — and that it will require $160 billion to cover the total shortfall.

A study, released Wednesday, of 847 defined benefits plans points to a looming social and economic crisis for Canada’s defined benefits pension plan holders and plan sponsors if the situation is not addressed. It warns that pensioners may have their benefits sharply reduced, and that inadequately funded pension plans may go bankrupt. Shortfalls will also negatively affect corporate financial results and share prices.

“ The Canadian pension landscape is changing,” Anthony Ariganello, president and CEO of CGA-Canada, said in a release. “Where previously, many large and well-established employers provided generous pension plans and employees fully expected to receive their benefits as a matter of course, we are now faced with a fluid and shifting environment.”

The study, conducted by Mercer Human Resource Consulting, estimates that Canadian companies would need to make special payments totalling $15 billion a year for five years to make up for the current deficits on a solvency basis. That would amount to 10% of each company’s payroll in each of the next five years – a significant drain on a company’s cash resources.

The study says it is unrealistic in the short term to assume that stock market returns alone will correct the situation. Considering that the long-term best estimate of future market returns for a balanced pension fund is about 6.5%, it would be “overly optimistic” to look to investment returns alone to cover the shortfall.

The study also notes that accounting standards are a concern. The use of an “expected rate of return” and smoothing mechanisms allow for the recognition of pension plan gains immediately, with shortfalls booked over time. This can distort the true picture of a pension fund’s performance by keeping losses off the balance sheet in the short term.

The study notes that such amortization of gains and losses, and amortization of past service costs can cloud a plan’s actual performance and recommends another look at pension-related accounting standards in Canada.