Most of the private defined-benefit pension plans at large Canadian companies appear to be well funded, suggests new research from DBRS.

The rating agency reviewed 70 DB plans, accounting for $149 billion in reported plan obligations and $141 billion in plan assets. According to the study, most private pension plans in Canada are “in a relatively strong position, considering the poor equity market performance and falling interest rates that have affected returns and increased the size of total obligations.”

Aggregate funding for companies reviewed in 2008 was approximately 92% of pension obligations, a relatively moderate drop from the comparable 98% level in 2007, DBRS reported.

“Rising discount rates represented a major abnormality that helped cushion the impact of extremely poor investment performance in 2008, with plan assets falling 17.5% in aggregate. On a solvency basis, however, lower discount rates caused a higher level of pressure on funding metrics and, as such, many plans will be under increased funding requirement pressures in the near term,” it said. However, DBRS views the overall funding situation as manageable.

“With the past emphasis on reducing pension deficiencies, pension plans are in a strong position to fulfill this goal over the medium term, once an economic recovery begins,” said Peter Schroeder, managing director with DBRS.

“For the vast majority, the situation is manageable as plans started in a relatively solid position and there has been some regulatory relief. It is safe to say that 2009 performance will be better than 2008, but it remains uncertain whether plans will meet expectations or not. From a long-term perspective, most plans would improve reasonably quickly with higher asset returns,” he added.

Additionally, the study noted that the companies that do encounter pension-funding challenges are not expected to undergo rating changes as a result. It also concluded that the shift from DB plans to defined-contribution plans will continue.