Some employers may have to double pension contributions in 2012

Companies

that offer defined benefit pensions may face rising costs this year and could end up asking regulators for relief, according to a report by human resources consulting firm Aon Hewit on Wednesday.

The firm’s assessment is just the latest to predict a tough time for defined pension plans in 2012 as a result of lower returns on investments and rock bottom interest rates, which increase liabilities for plans.

Andre Choquet, an investment consultant with Aon Hewitt, said there is already talk in Quebec and Manitoba of the provincial governments providing funding relief for pension plans in those provinces.

He said some companies will be in more difficulty than others because the pension plan may have “a significant impact on cash flows and balance sheet formation.”

“Even if those plans are closed, they have a legacy liability that has accumulated over the past and they might be in a deficit situation too.”

Choquet said that 96 per cent of the roughly 150 pension plans included in the Aon Hewit review were in a deficit, regardless of industrial sector, and the deficits were bigger than a year earlier.

Aon Hewitt said the median pension solvency funded ratio — the ratio of the market value of a plan’s assets to its liabilities — is approximately 15 per cent lower this year than at the start of 2011.

As a result, plan sponsors that file an actuarial valuation this year will need to add more cash to comply with minimum funding rules.

Several of corporate Canada’s biggest names have spent hundreds of millions to shore up their defined benefit pension plans in recent years.

In November, Canadian Pacific Railway Ltd. issued US$500 million in debt securities in the United States to help reduce its Canadian defined benefit pension deficit, while Canadian National Railway Co. said in October it would make a $350-million pension contribution for 2011.

BCE made a $750-million voluntary payment on its defined benefit pension plan in December, while Telus said it would make a $100-million voluntary contribution to its pension fund early in 2012.

Air Canada required a special regulation from the federal government allowing it to eliminate its pension deficit over a longer period than usual during its restructuring under court protection from creditors.

Choquet noted that funds with more bonds than stocks did better than those that were more aggressive last year, which saw the S&P/TSX composite index drop more than 10 per cent.