Office of the Superintendent of Financial Institutions

Office of the Superintendent of Financial Institutions

October 21, 2010 09:30 ET

OSFI Releases Estimated Solvency Ratio (ESR) of Federally Regulated Private Pension Plans

OTTAWA, ONTARIO--(Marketwire - Oct. 21, 2010) - The Office of the Superintendent of Financial Institutions (OSFI) has released the results of its latest solvency testing of federally regulated, defined benefit, private pension plans.

As part of its regular monitoring activities, every six months OSFI estimates the ratio of plan assets to plan liabilities of the 400 defined benefit plans it regulates. 

The average solvency ratio at June 30, 2010, is estimated at 0.87, which is lower than the December 2009 estimate of 0.90. "The deterioration in the estimated ratio was largely due to weak pension fund returns during the first half of the year," said Judy Cameron, Managing Director of OSFI's Private Pension Plans Division. "Since June 30th, market conditions have remained volatile. Although pension fund returns have improved, there has been a substantial decline in long -term interest rates." 

During the past year, the government has been implementing reforms to the legislative and regulatory framework for federal private pension plans. The package of measures is designed to help plan sponsors better withstand volatility in financial markets while still maintaining benefit security. A number of changes to federal pension legislation and regulations came into effect in July, including new solvency funding requirements. Other proposed reforms are expected to be implemented over the coming months. 

"A strong legislative and regulatory regime is important, but ultimately pension plan administrators are responsible for managing their plans." Ms. Cameron continued, "The modest decline in the average estimated solvency ratio in June suggests that plans will continue to face elevated funding demands in the coming months. OSFI encourages administrators to adopt robust risk management practices regardless of market conditions. In particular, scenario testing can be used to assess and prepare for the impact of possible changes in investment returns and interest rates on plan solvency and funding requirements." 

Created in 1987 by an Act of Parliament, the Office of the Superintendent of Financial Institutions (OSFI) is the primary regulator and supervisor of federally regulated deposit-taking institutions, insurance companies, and federally regulated private pension plans. OSFI's mandate is to advance and administer a regulatory framework that contributes to public confidence in a strong, stable and competitive financial system.

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