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A sign hands in the office of the Ontario Teachers' Pension Plan on Wednesday, June 12, 2013.

Canadian pension plans have taken major steps to restructure because of ongoing funding problems – and a new survey suggests more change is coming.

A survey of pension plans in Canada by consulting firm Aon Hewitt shows 71 per cent of pension plans in the public sector are considering requiring more contributions from members, and about one-third say they are considering reducing discretionary benefits or reducing inflation indexation.

In the private sector, change has been even more rapid. The survey found 75 per cent of traditional defined benefit pension plans operated by companies who shares trade publicly have already closed at least one of their pension plans to new members.

Fifteen per cent of those private sector companies say they are looking at going further to freeze their plans in the near future, which means existing plan members would make no further contributions and earn no additional benefits in the plans.

Aon Hewitt senior partner Will da Silva said pension plans in Canada are reviewing many practices and policies to better manage their funding risks after a decade of turmoil that has seen most pension plans confront large funding deficits.

"For most plan sponsors, the pain of the last few years has led to a greater awareness of the risks faced by their DB pension plans. ... To survive, pension plans must be affordable for their sponsors, and appropriate risk management is one way to manage this goal," Mr. da Silva said.

The survey found 43 per cent of pension plan sponsors also reported they are "curious" about target benefit plans. Such plans are a hybrid where a fixed benefit level is targeted for payout in retirement like a typical pension plan, but the final payouts can be reduced if the plans are facing a deficit, giving companies more flexibility and reducing the need for large cash contributions when plans are underfunded.

Target benefit plans are still relatively rare in Canada, but are becoming more common in other countries as a way of preserving some elements of traditional pension plans while easing the funding burden for plan sponsors.

There are also signs pension plan funding has been improving in 2013 with the rise in long-term interest rates. Aon Hewitt said the median solvency rate for pension plans in Canada as of September was 88 per cent – which means they had assets equal to 88 per cent of their liabilities on a wind-up basis. Six per cent of plans had a funding surplus as of September.

The survey shows pension plans are reducing their exposure to Canadian equities, while more than 30 per cent say they are increasing their investments in alternative categories, such as infrastructure or real estate. Many funds said they are also looking at hedging risks related to interest rate movements and are planning to increase their investments in long-term bonds to match the long-term nature of their liabilities.

Almost half of pension plans reported they have taken advantage of funding relief options provided by governments, which typically have included allowing pension plans extra time to make up funding shortfalls. Thirty per cent said they will seek relief next year.

As well, 19 per cent said they have exercised an option to use letters of credit to make up shortfalls in their plans, which allows pension funds to conserve cash, and 22 per cent said they intend to use letters of credit in the future.

Aon Hewitt said letters of credit remain "underutilized" by pension plans and are useful for managing short-term volatility in contribution levels.