Canada Post pension plan deficit grows to $4.7bn

Canada Post saw the solvency and deficits of its $15bn pension plan getting “significantly” worse last year, according to its latest financial results, with its solvency gap widening to $4.7bn at the end of 2011. One of the largest single employer pension funds in Canada, the Plan covers nearly 85,000 active members, pensioners, deferred members and beneficiaries.

But in 2011 the plan’s investments continued to be hit by “tumultuous” global markets, with its “modest” 0.2% rate of return falling behind its benchmark of 0.8%.

Canada Post said yesterday that while the plan’s net assets grew $73m to a total of $15.431bn, the long-term interest rates used to calculate pension obligations were at “historically low levels”, and declined further during the year.

Douglas Greaves, vice president of the pension fund and chief investment officer, said the pressures during the year meant the Plan’s estimated solvency and going-concern deficits had “worsened significantly”.

The Plan’s solvency shortfall – the gap between the pension plan’s assets and its liabilities – increased from just over $3.2bn at the end of 2010 to almost $4.7bn at the end of 2011.

The plan’s going concern deficit – the shortfall in the fund’s income compared to how much it pays out to pension beneficiaries – grew from $175m at the end of 2010 to $423m at the end of 2011.

Greaves said investing in new markets should help increase the pension plan’s returns without exposing itself to more risk.

He said: “Throughout a very challenging year of declining markets and lower discount rates, the Plan continued to focus on the long-term view and to position itself to take advantage of future growth opportunities. In 2011, we added to our real estate investments and entered new markets such as infrastructure and emerging markets. We expect that this will allow the Plan to increase investment returns without increasing volatility and risk.”

Canada Post said it was not alone in having problems with its pension plan, that 94% of pension plans in Canada currently have solvency shortfalls, and that its own pension plan solvency ratio of 79% was average for Canadian pension plans.

As sponsor of the pension plan, Canada Post is responsible for making up any deficits.

The Crown Corporation said it will request permission from the Canadian government to use special relief measures in 2012, as allowed under national pension legislation, as it did during 2011. Last year, Canada Post reduced its special solvency payments by $433m and ended up making payments of $219m on top of its regular service cost contributions.

Canada Post said it would do what was needed to keep the pension plan sustainable, since its sustainability was directly linked to its own financial sustainability.

“The Board of Directors and management will pursue necessary changes to ensure Canada Post, the sponsor of the Plan, remains financially sustainable,” said President and CEO Deepak Chopra. “Canada Post must continue to be a healthy, viable and profitable company in order to provide the strongest possible foundation for a sustainable pension plan.”