Posted by Nobody on 12/3/2004, 7:56 pm The study estimates that an additional $160 billion is needed to cover the current deficit in the pension plans. If all plans were fully indexed to inflation, they would require $240 billion. About 59 per cent of "defined benefit pension plans" in Canada were in deficit as of Dec. 31, 2003. This was an improvement from 67 per cent of pension plans at the end of 2002. In 2003, the average return on equity investment for Canadian pension plans was 14 per cent compared to the average return on equities of 26.7 per cent. This was due to a stronger performance in the stock market in 2003. Most pension plans have funds to cover 80 per cent of their obligations. The CGA study says the plans would need at least 10 per cent return on investment over five years to bring the pensions up to 100 per cent. The study estimates that the average balanced pension fund will only receive a return on investment of 6.5 per cent. Canadian pension plans need $15 billion just to make up for losses in the market in 2001 and 2002 following the Sept. 11 attacks. In some cases where a company has gone bankrupt and the pension fund has been wound up so that pensioners only get a portion of what they expected, former members of the pension board, including employee volunteers, have been sued for millions of dollars. Current legislation does not give pension plans any incentive to fund the plan any more than the minimum required by law. Only a small minority of companies have opted to fully fund their pensions to correct pension deficits. One company was General Motors in the U.S., which issued $18.5 billion US in bonds to cover the pension deficit. In Canada, Imperial Oil paid in $500 million and Canadian Pacific $300 million. The CGA report is that flat and career benefit pension plans are poorly funded compared to final average pension plans. · A flat benefit plan gives a fixed dollar amount for each year of service at retirement. · A career benefit plan provides a pension based on percentage of earnings over the entire period of employment. · A final average plan provides the pension on a percentage of earnings in the last or best five years or service. (Flat and career plans are usually part of union collective agreements where improvements are negotiated in collective bargaining.) According to the CGA, 27 per cent of flat and career benefit plans in the private sector are funded below 70 per cent. Only two per cent of final average plans in Canada are funded below 70 per cent.
69.159.3.144
According to a fall 2004 study by the Canadian Certified General Accountants
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