The unfunded pension liabilities of Canada’s provinces are expected to remain manageable over the medium to long-term, according to a new report from Moody’s Investors Service.

“The credit challenges arising from unfunded pension liabilities are fully incorporated into our current range of ratings and outlooks for the Canadian provinces,” says Moody’s vice president David Rubinoff and co-author of the report. “The strong fiscal framework developed since the mid-1990s –notwithstanding recent slippage in fiscal outcomes in certain provinces — continues to provide a solid foundation for creditworthiness.”

In Ontario, pension obligations were fully funded as at March 31, 2003, with cash contributions totaling 1.5% of revenues. British Columbia recorded the lowest unfunded pension liability of the ten provinces as at March 31, 2003, negligible as a percentage of GDP, with cash costs of 3.3% of total revenue.

Quebec and Newfoundland & Labrador, which recorded unfunded pension liabilities as a percentage of GDP of 15.8% to 21.5% as at March 31, 2003, respectively, face the most significant challenges of the 10 provinces. In fiscal year 2002-03, cash contributions amounted to 6.2% of total revenue for Newfoundland & Labrador and 7.5% for Quebec.

“Across the Canadian provinces, unfunded pension liabilities relative to GDP have been stable or trending downward in recent years,” says Rubinoff. “Cash contributions to fund pension obligations relative to total revenue have also been either stable or trending downward.”

These trends are supported, to varying degrees, by government policy initiatives, he says. The report notes that many provinces have introduced special contribution payment programs, aimed at reducing or eliminating the unfunded liabilities over the medium to long-term. In one case, Saskatchewan, exposure to investment risk for new employees has been eliminated through the introduction of defined contribution plans for the vast majority of its employees.