Quarterly Update on Estimated Solvency Funded Status of Defined Benefit Plans in Ontario

The Financial Services Commission of Ontario (FSCO) publishes an annual Report on the funding of defined benefit (DB) pension plans that provides funding, investment and actuarial information on DB plans registered in Ontario.

As the solvency position of pension plans continues to be of significant interest, FSCO is publishing quarterly updates on the solvency funded status of DB plans in Ontario, to provide stakeholders with more frequent information on the health of pension plans in Ontario.

As the regulator of pension plans in Ontario, FSCO has a complete database of information on every Ontario registered pension plan. The projected solvency ratio is estimated based on approximately 1300 DB pension plans, including hybrid plans that have a DB provision. Each update uses information in the latest filed valuation reports from the annual Report, projected to the end of the quarter in question. We have excluded designated plans, frozen plans and plans that have been wound up or are in process of winding up.

The information is presented on an aggregate basis for all pension plans registered in Ontario. While there is no disclosure of plan-specific information, the updates will give stakeholders a framework to see how their plan performed compared to other plans and relevant benchmarks.
 

Previous Updates

 

 

   2017 First Quarter     

 

 

Update as at March 31, 2017

 

  • The median solvency ratio is 93% (compared to 91% as at December 31, 2016)
  • 63% of plans had a solvency ratio between 85% and 100%
  • 22% of plans had a solvency ratio greater than 100%

The 2% increase in the estimated median solvency ratio since December 31, 2016 is attributable to the following:
 

  • Robust first-quarter 2017 model pension fund investment returns led to a 1% increase in the ratio;
  • Reduction in solvency liabilities due to an increase in commuted value interest rates resulted in a 1% increase in the ratio.

A strong pension plan solvency ratio of 93% at the end of the first quarter of 2017 continued the upward trend that began in late 2016. The last time solvency ratios reached these levels was in early 2014, when they peaked to 93%, falling quickly thereafter.


Solvency positions were buoyed by positive first-quarter equity and bond returns. S&P/TSX domestic equity returns of 2.4% were accompanied by particularly strong MSCI World equity returns of 5.8%.  Bonds fluctuated within a narrow range during the quarter, resulting in a FTSE TMX 1.2% Universe bond return.


Plan sponsors should continue to monitor major characteristics of their plans’ liability exposure and the risk/return profile of the asset portfolio from which benefits will be paid.

Assets, Liabilities and Median Solvency Ratio

 Assets, Liabilities and Median Solvency Ratio

 

 

View accessible description of Assets, Liabilities, and Median Solvency Ratio Line Chart

Distribution of Solvency Ratio 

Distribution of Solvency Ratio 

 

View accessible description of Distribution of Solvency Ratio Bar Chart

Methodology and Assumptions:  

 

  1. The results reported in the last filed actuarial valuation reports (assets and liabilities) were projected to March 31, 2017 based on these assumptions:
  • sponsors would use all available funding excess and prior year credit balance for contribution holidays, subject to any statutory restrictions;
  • sponsors would make the normal cost contributions and special payments, if required, at the statutory minimum level;
  • the amounts of cash outflow would equal the pension amounts payable to retired members as reported in the last filed valuation report.  Plan administration costs were not reflected.
  1. The assumed quarterly asset class returns for 2017 are shown in the table below. The model pension fund earned a return of 2.7% in the first quarter of 2017. These rates of return (Canadian $) were developed based on the following asset mix: 45% in fixed income, 30% in Canadian equities, and 25% in foreign equities.

2017

​TSX Canada​MSCI World​FTSE TMX Bond​Total Return on model pension fund
​1st Quarter​2.4%​5.8%​1.2%2.7%

 

  1. The estimated solvency liabilities were calculated based on the Canadian Institute of Actuaries Standards of Practice and the Canadian Institute of Actuaries Educational Notes, with these key assumptions:

​Valuation Date

​Commuted Value Basis​Annuity Purchase Basis 1
March 31, 2017
Interest:  2.30% for 10 years
              3.90% thereafter
Mortality: CPM2014 generational
Interest: 3.07%
 
Mortality: CPM2014 generational
December 31, 2016

​Interest:  2.20% for 10 years, 

              3.50% thereafter
Mortality: CPM2014 generational 

​​Interest: 3.11%

 
Mortality: CPM2014 generational 

 

 

1 based on a medium duration illustrative block

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