The Office of the Superintendent of Financial Institutions is calling on defined benefit pension plans to consider the implications of the market downturn on their plans.

It notes that the recent market downturn and ongoing market volatility “are strong reminders of the importance of being prepared for a wide range of potential shocks or adverse events”. At June 30, the average solvency ratio of federal pension plans had deteriorated to 0.98. “Since then, financial markets have experienced sharp declines and significant turbulence. If current market conditions continue, we can expect asset values for many plans to be severely eroded at year-end,” OSFI says.

“In this environment, it is essential that plan sponsors and administrators carefully consider the implications of the market downturn on their pension plans,” it says. While OSFI voices pension concernsmarket values used in solvency valuations will only be known at a pension plan’s year-end, particular issues for plans to consider now include: estimated 2009 contribution requirements; negotiated contribution defined benefit plans that expect their contribution levels will not be sufficient should develop an action plan to address such a situation; any pension fund liquidity pressures; and, for sponsors that have been taking a contribution holiday, whether continuation of the contribution holiday remains appropriate in light of the plan’s projected solvency position.

It adds that pension plan sponsors and administrators should also consider a range of longer-term scenarios, “including the possibility of protracted market weakness, and think about possible responses that are consistent with their risk tolerance.”