Funding The Pension Solvency Gap

By Mark Barnicutt on November 14, 2010

Recently, my partner, Chris Page, attended a global investment conference held in Ottawa, and had a chance to speak with quite a number of Defined Benefit Pension Sponsors. Without fail, the topic discussed the most was pension solvency. Not one sponsor in the group with whom he spoke had a fully-funded pension at their last valuation!

One of the reasons solvency has become an issue over the years is the asymmetry of pension fund surplus. In simple terms, if employers over-contributed to defined benefit pension plans, the excess/surplus is deemed to belong to the plan and its members – not the employer. In years gone by, when interest rates were high and market returnspositive, pension provisions were improved or negotiated. Amendments like COLA clauses and beneficial early retirement enhancements have become increasingly more expensive with an aging workforce and lowered interest rates.

Unfortunately, there are no perfect answers on how to close the funding gap. Each plan sponsor has to assess their own circumstances. However, there were some solutions discussed in the corridors at the Ottawa conference:

In the attached article, Chris Page (VP & Director, HighView Financial Group), reviews the various reasons for the pension solvency issue as well as some of the potential strategic responses being discussed.

To read this article, please click here.

About Mark Barnicutt

As HighView’s President, CEO, and Co-Founder, Mark Barnicutt is knowledgeable in all major functional areas of the family wealth business. He is an expert in wealth management, leading HighView with over 25 years of experience in the industry.
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