Estimated solvency ratios for federally regulated private pension plans deteriorated over the second half of 2008, the Office of the Superintendent of Financial Institutions said Thursday.

OSFI released the results of its latest solvency testing of pension plans, reporting that the average estimated solvency ratio of federally-regulated defined benefit plans at December 31, 2008 was 0.85, a decrease from 0.98 as reported in June 2008.

“The deterioration in funded status was due primarily to a decrease in the value of pension plan assets, reflecting losses on equity investments,” says Superintendent Julie Dickson. “Slightly higher interest rates had a small positive impact, as higher interest rates have the effect of lowering pension plan liabilities.”

OSFI has previously advised pension managers to be prepared for the effects of the current market downturn, and to consider a range of longer-term scenarios, including the possibility of protracted market weakness. “OSFI continues to encourage plan administrators and sponsors to use scenario testing as a risk management tool,” adds Dickson.

The private pension plans subject to OSFI regulation currently represent 7% of all private pension plans in Canada, and approximately 12% of pension assets.

IE