Despite reeling from the financial impact of the economic downturn on company pension plans and their businesses, Canadian organizations remain cautiously optimistic on the financial viability of their defined benefit plans (DB) plans, according to the third CFO Research Services study conducted in conjunction with professional services firm Towers Perrin.

According to the survey, 71% of finance executives are committed to maintaining the long-term viability of plans, and 86% feel confident they have adequate cash to fund their plans for the next two years.

The study — which included 439 finance executives across Canada, the United States and the United Kingdom. (137 from Canada) — found that even though Canadian organizations feel the hardest hit by the impact of the economic downturn on DB pension plans, they are also the most optimistic in their outlook — both in terms of future pension funding and the overall economic outlook.

Overall, Canadian finance executives felt worse-off compared to those in the U.S. and the UK, with 87% who believe their DB plans’ financial strength was negatively impacted by the financial downturn (compared to 67% in the U.S. and 49% in the UK).

More than half (63%) of Canadian respondents also report that their DB plan had a negative impact on their company’s financial statements (compared to 59% in the U.S. and 37% in the U.K.).

Amid funding shortfalls and poor business performance, Canadian executives foresee the biggest concerns over the next two years to be the DB’s impact on cash flow (61%), followed by impact on their income statement (44%).

Despite the economic impact on their pension plans, the study indicates that for the time being Canadian organizations remain committed to staying the course with a cautiously optimistic outlook on the viability of their DB plans. The majority (71%) of Canadian respondents said their focus is to ensure the long-term viability of their plans rather than seeking alternatives.

“Our advice to plan sponsors remains the same as two years ago when we encouraged sponsors to begin ‘using the calm before the storm’ to implement pension risk management programs. This still holds true. When the calm finally emerges after this storm, sponsors will have the opportunity to embrace evolving tools and strategies to address the ever-increasing pension risk challenges while also seeking the optimal level of returns,” says Monica McIntosh, national leader of Towers Perrin’s asset consulting practice in Canada.

Interestingly, Canadian DB plan sponsors are the most optimistic in their outlook — both in terms of future pension funding and the overall economic outlook — compared to those in the U.S. and UK. While finance executives are concerned about the cash flow impact of their DB plans, 86% are confident that they have adequate cash to fund their plans for the next two years (82% in the U.S. and 62% in the UK). This optimism may be spurred in part by a view that the worst is behind us, with the majority (69%) of Canadian respondents believing the equity markets were at their lowest point for this cycle at the time of the survey in April/May this year (53% in the U.S; 36% in the UK).

New retirement reality on the horizon

However, the study findings do support the notion that a “new retirement reality” is on the horizon. There is no doubt that recessionary pressures have acted as a catalyst to change, potentially changing Canada’s retirement outlook for decades to come. The study showed that 87% of finance executives from Canadian companies (72% in the U.S. and 37% in the UK) believe that the downturn is “causing a long-term shift in how companies and workers prepare for retirement.” From an employee perspective, a recent Towers Perrin survey of employers indicated that nearly half (49%) report their employees plan to postpone retirement in light of the current economic climate.

On an encouraging note, Canadian finance executives report that the impact of the economic downturn on DB plans does have an upside in terms of their workforce relationships, with 61% of respondents who report that the recent economic events have had a positive effect on their employees’ appreciation of their DB plan.

The third annual “CFO Pension Risk Survey” was developed by Towers Perrin and CFO Research in an effort to understand the effects of the economic downturn on companies’ DB plans. The study included 439 senior finance executive responses from large U.S., U.K. and Canadian organizations across all industries as well as an extensive interview program with senior finance executives. The online survey was conducted during April and May 2009.

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