Whose Money Is It? Canadian Business (04/28/03) Vol. 75, No. 8 p.11; Olijnyk, Zena
According to a recent study by Richard Ivey School of Business professors Christine Wiedman and Heather Weir, Canada's top 100 defined-benefit pension plans posted a deficit of $20 billion last year versus a $20.6 billion surplus just two years before. The mounting deficit can be attributed to low interest rates and shaky equity markets, which left those companies that dipped into their surpluses without enough funds to pay retirees. Air Canada, for instance, filed for bankruptcy protection in early April after its pension fund shrunk from a $1.07 billion surplus in 1999 to a $1.3 billion deficit in January. Though Canadian law prohibits employers from using a surplus without the permission of all employees, many employers think they are entitled to use the surplus funds simply because they are held liable for any downturn. However, before companies take from the surplus, they should ensure the plan has long-term security and consider actuarial assumptions, rather than just the plan amount, the markets, and investment strategies.