It isn't out with the old for Canadian pension plan executivesin this new year, as trends impacting plan management in 2019 areexpected to continue or grow in 2020, sources said.

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Among the trends expected to most impact the industry this yearare:

  • Continuing opportunities for long-range pension planning asstrong investment returns in 2019 improved funding levels fordefined-benefit plans in the new year;
  • Additional provinces allowing pension plan fund accounting tobe based on a going-concern, or ongoing, basis rather than aone-year solvency formula;
  • An enhancement of the trend among direct benefit planexecutives in using outsourced chief investment officer platformsor consolidating their plans; and
  • An increase in the use of defined contribution or hybrid planstructures like target-benefit funds with both defined-benefit anddefined-contribution elements.

Pension plan executives will do some "expectations management"in 2020, said Scott MacDonald, director, investments, at WillisTowers Watson PLC in Toronto. "Every asset class has had a longbull run, a 10-year bull run, so they might think every decisionthey made was perfect," MacDonald said. "But 2019 wasn't a normalyear. What [pension executives] need to do is look for diversity intheir portfolio so that they can stay robust no matter whathappens."

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Jana Steele, partner, pension and benefits, at the law firm ofOsler Hoskin & Harcourt LLC in Toronto, said the trends towardhybrid plan structures and going-concern funding rules willcontinue not only for the coming year but for the foreseeablefuture, driven more by efforts to keep retirement plans "moresustainable."

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"There's a lot of pressure to do this," said Steele. "Changes inaccounting rules have made it more difficult for pension plansponsors. Hybrid plan structures and going-concern accounting havemade it more attractive for plan sponsors to keep their retirementplans."

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The improved solvency of Canadian defined-benefit plans lastyear—to a median range of 98 percent to 102.5 percent as ofDecember 31, up from 93 percent to 95.3 percent a year earlier,according to Aon and Mercer Canada data—"has freed up [pensionfund] clients to have strategic consultations that they haven't hadin a while," MacDonald said.

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"A lot of plans that are now 90 percent to 100 percent fundedcan take a look at whether they want to take risk off the table,add risk if they're looking more long-term, or make the move todefined-contribution. There will be a lot more discussions likethis in 2020," he added.

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Another de-risking trend in 2020 will be to protect plansponsors that would like to use annuity buyouts for their pensionobligations from "boomerang risk"—the risk of being responsible forthose obligations if the insurer that manages the annuity declaresbankruptcy, according to Osler Hoskin's Steele. Ontario passed suchlegislation in 2019, joining British Columbia, Quebec, and NovaScotia. "Other provinces will be considering similar bills in thefuture," she said.

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In addition, there should be greater interest amongdefined-benefit plan leaders in using external providers to notonly manage their investments, but also execute a plan's overallinvestment strategy and asset allocation, MacDonald explained:"Most investment committees aren't equipped to do [an allocationchange or asset manager selection] on their own. That's why OCIOhas and will continue to have tremendous traction." (Willis TowersWatson offers an OCIO platform.)

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Along with investment outsourcing, more defined-benefit plansponsors will consider consolidation with jointly sponsored pensionplans like the Colleges of Applied Arts and Technology PensionPlan, Toronto, according to Steele. CAAT has added 14 pension plansto its DBplus program, in which CAAT pools the investments ofmember plans. "People are seeing the pooling of assets as a moreefficient way of maintaining their defined benefit plan," shesaid.


Rick Baert is a freelance journalist whospecializes in covering institutional money management, trading,and asset servicing. He is a retired editor and reporter with 42years of experience with financial, business, and daily newsservices. Rick has covered the Canadian pension fund industry forthe past six years.

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From: CAIP.

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