FSRA has released its 2020 Report on the Funding of Defined Benefit Pension Plans in Ontario (available in English only).

FSRA regulates all pension plans registered in Ontario and as Canada’s largest pension regulator, is a trusted source for the pension industry. As part of FSRA’s efforts to deliver on our mandate to promote good administration of pension plans, and to protect and safeguard the pension benefits and rights of pension plan beneficiaries, this report provides pension stakeholders with funding, investment and actuarial information on the registered defined benefit (DB) pension plans we regulate.

Highlights of the report include:

  • The estimated median going-concern funded ratio has decreased slightly to 114% as at December 31, 2020 compared to 115% as at December 31, 2019;
  • The estimated median solvency ratio decreased to 96% as at December 31, 2020 versus 98% as at December 31, 2019;
  • 1,035 plans (approximately 90% of plans) have transitioned to the 2018 funding regime, which required the funding of a reserve, called a Provision for Adverse Deviations (PfAD). The data shows that:
    • The number of plans identifying themselves as closed and open for purposes of determining the PfAD are 798 and 237 respectively. The median PfAD for all these plans is 9.6%;
    • Further analysis revealed that the introduction of a PfAD under the 2018 funding regime was almost always accompanied by the elimination of a margin previously included in the going concern interest rate. FSRA will continue to monitor these developments to detect emerging trends and to understand their implications on benefit security and pension risk management.
  • The typical asset allocation of pension funds between fixed income and non-fixed income changes did not change significantly for single employer pension plans (SEPPs), while multiemployer pension plans (MEPPs) and certain large jointly sponsored pension plans (“Listed JSPPs” – listed in subsection 1.3.1(3) of Regulation 909 and not required to fund on a solvency basis) saw a reduction to their fixed income allocation. The allocation to alternative investments increased across the board, with highest increases for Listed JSPPs, followed by MEPPs and then SEPPs.
  • Larger plans generally have higher investment returns. However, it was not the case this year as the average gross investment return for plans (other than Listed JSPPs) with asset size over $1 billion significantly underperformed plans with lower asset size. Excluding Listed JSPPs, the average gross investment return for plans that have assets of less than 10 million is 13.71% vs 11.37% for those with assets of over $1 billion;
  • The number of SEPPs has decreased by 77 compared to the 2019 Report, mainly due to plan windups and asset transfers (e.g. plan mergers). Of note, the membership in SEPPs has decreased whereas the membership in MEPPs and Listed JSPPs have increased.

Subsequent events

The World Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic on March 11, 2020. This is of note because although the 2020 Report is based on valuation reports filed with valuation dates up to June 30, 2020, only 13 of the included reports have a valuation date on or after March 11, 2020. As such, the impact of the pandemic is not fully reflected in the analysis shown in this report. Note, however, that FSRA does monitor the estimated solvency funded position of pension plans on a quarterly basis which reflects plans’ up-to-date experience – these can be viewed at Estimated Quarterly Solvency Funded Status of Defined Benefit Plans in Ontario . These updates reveal that the estimated median solvency ratio of pension plans steadily increased from a low of 85% as at March 31, 2020 (near the beginning of the pandemic) to 103% at March 31, 2021 – the highest median solvency ratio since 2009.

Businesses have reviewed their operational needs in light of the economic environment and many pension plans (over 60%) who filed new valuations did so on a voluntary basis (often referred to as “off-cycle” valuations) with effective dates prior to March 2020 in order to stabilize and manage their funding requirements.

At FSRA, we remain vigilant in monitoring the situation as it develops. For pension plan administrators, it is paramount to understand the risks their plans are exposed to and to adjust as appropriate to manage those risks. FSRA is committed to continue engaging with plan sponsors and fiduciaries to collaboratively improve plan administration and benefit security for beneficiaries.