The projected median solvency ratio of Ontario defined benefit (DB) pension plans fell to 85% in the first quarter of 2020, down from 99% at the end of 2019, according to a pension funding status report released by the Financial Services Regulatory Association (FSRA) of Ontario on Wednesday.
FSRA attributed the “significant” decrease in the estimated median solvency ratio to negative pension fund investment returns and falling discount rates pushing plan solvency liabilities higher.
“The shock to the capital markets and the economy caused by the Covid-19 pandemic present challenging conditions for many pension plans and companies,” the report indicated.
According to FSRA, 51% of DB plans in the province have an estimated solvency ratio below 85% as of March 31, compared to only 10% of plans at the end of 2019. Thirty-five percent of DB plans had a projected solvency ratio between 85% and 100%, compared to 42% at the end of the previous quarter, and 14% of plans had a projected solvency ratio over 100%, compared to 48% in the previous quarter.
FSRA has not imposed a ban on the transfer of the commuted value of DB pension plans in Ontario, but it has reminded plan administrators that if a pension plan’s transfer ratio has fallen by 10% and is below 0.9, they must cease the transfer of commuted values.
In March, the Office of the Superintendent of Financial Institutions (OSFI) placed a temporary freeze on the transfer of commuted values out of federally regulated DB plans.
In late May, FSRA issued guidance to administrators on its process for assessing commuted value transfer requests in situations where a plan’s transfer ratio had fallen below certain thresholds.