Ontario DB pension plans maintain financial strength

Median solvency ratio reaches a new all-time high

Ontario DB pension plans maintain financial strength

Defined benefit (DB) pension plans in Ontario maintained its stability both quarterly and annually, a report by the Financial Services Regulatory Authority of Ontario (FSRA) said.  

The FSRA recently released the Q2 2023 Solvency Report and the 2022 Report on the Funding of Defined Benefit Pension Plans in Ontario last June and July, respectively.  

Q2 2023 Solvency Report 

The overall funded position of pension plans showed a continued improvement with the median solvency ratio being 116%, a point higher than the previous quarter and 4% higher than Q4 of 2022.  

While this was only a slight increase in contrast to the 3-point difference between Q1 of 2023 (115%) and Q4 of 2022 (112%), it still resulted in the median solvency ratio reaching a new all-time high. This increase was attributed to the positive pension fund investment returns in Q2, averaging a net return of 0.7%, and a change in the solvency discount rates. 

The percentage of pension plans that were fully funded on a solvency basis was still at 86%, continuing the feat from the previous quarter. The plans that were under an 85% solvency ratio also remained unchanged from Q1, maintaining their position at 2%. 

2022 DB Funding Report 

The funded position of pension plans showed an improvement over the year. The median funded ratio of pension plans on a going-concern basis was 111%, a 3% increase from 2021 while the percentage of fully funded plans was 83%, up from 76%. 

Plans in a solvency basis had a 102% median funded ratio while the percentage of fully funded plans was 56%. This was an increase from the respective 97% and 41% in 2021.  

FSRA estimated that the projected going-concern funded ratio of the plans declined to 93% on December 31, 2022, from 116% at the same time in the previous year. The median projected solvency ratio is 113% by December 31, 2022, while it was 109% by December 31, 2021.  

For the solvency funding, 80% of the pension plans had a projected solvency ratio that was greater than 100%. This was a 4% increase from the previous year. Meanwhile, 16% of the plans had a projected solvency ratio between 85% and 100%, and 4% had projected solvency ratio below 85%. 

In order to maintain the current stability of the DB pension plans for the sake of beneficiaries, FSRA encouraged plan sponsors and administrators to continue monitoring the risks of plans and ensure that the rights and benefits of every member are duly protected.