TORONTO —The significant volatility in the equity and bond markets since the beginning of May has had a detrimental impact on the accounting positions of Canadian defined benefit positions, according to Hewitt Associates, a global human resources consulting and outsourcing company. The aggregate funded ratio of Canadian defined benefit pension plans decreased from 99 per cent at the beginning of May to a low of 92 per cent at close of business on May 20 before recovering somewhat to 94 per cent by May 28.

The current volatility in the financial markets means that there are significant swings in deficit position (both positive and negative) on a daily basis. The deficit of Canadian defined benefit plans has moved from $1 billion at the start of May, to the May 20 low of $12 billion, subsequently recovering to $8 billion by May 28.

The funding position between January 1 and the beginning of May had moved very little in comparison.

This increased volatility comes at a time when plan sponsors are focusing on the final stages of the transition to International Financial Reporting Standards, which will mean the funding position of the plan (and the inherent volatility) will sit directly on the sponsor's balance sheet. 

"The dramatic swing in the funded ratio of these plans underscores how vigilant plan sponsors have to be in monitoring risk factors," said Thomas Ault, a senior retirement consultant in Hewitt's Vancouver office. "The current volatility in the markets requires plan sponsors to take appropriate steps to manage risk. While a certain amount of pension risk is healthy, plan sponsors need to determine their comfort level and then adjust their strategies with the changing landscape—as interest rates, currency exchange rates and inflation, among other risk factors, impact investment returns."

The source for Hewitt's data is its Pension Risk Tracker. The Pension Risk Tracker updates the aggregated funded ratio of defined benefit pension plans of companies in the S&P/TSX, S&P 500, FTSE and DJ Euro Stoxx 50 on a daily basis. For more detail and analysis of the change in pension funded ratios, please visit the following Hewitt Web site: https://rfmtools.hewitt.com/PensionRiskTracker/

About Hewitt Associates 
Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt consults with companies to design and implement a wide range of human resources, retirement, investment management, health management, compensation, and talent management strategies. As a leading outsourcing provider, Hewitt administers health care, retirement, payroll, and other HR programs to millions of employees, their families, and retirees. With a history of exceptional client service since 1940, Hewitt has offices in 33 countries, including Canadian offices in Toronto, Montreal, Vancouver, Calgary and Regina, and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visitwww.hewitt.com/canada.