Canadian companies are continuing to dismantle defined benefit pensions even as the economy improves, according to a review by Towers Watson.
A survey of 150 Canadian pension plan sponsors found 51 per cent have converted to defined contribution (DC) plans for current employees or new hires, up from 42 per cent in 2008.
Defined contribution plans do not pay a guaranteed level of benefit at retirement, like a traditional plan, but instead pay a return that varies based on the performance of the investments held by each member of the plan.
Companies surveyed are continuing to convert their defined benefit plans to DC accounts, with 12 per cent of those surveyed in 2010 saying they would convert to a DC plan within 12 months - up from 5 per cent in 2008 - and a further 9 per cent reporting plans to convert in 2011.
"The study suggests that this trend shows no signs of relenting - the Rubicon has been crossed," the Towers Watson report said.
Employers have complained about the volatility and risk of maintaining a traditional defined benefit pension plan in recent years as low interest rates have reduced returns while simultaneously boosting the liability that must be funded.
Ian Markham, Canadian retirement innovation leader at Towers Watson, said the financial crisis appears to have led to a permanent shift in the attitudes of companies that sponsor pension plans.
"This year's survey results show that employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design of investment strategy," he said.
However, Towers Watson said the survey showed one glimmer of hope for employee pension plans. Employers acknowledged that workers in Canada's aging population will find defined benefit plans more valuable in the future. Companies considering changing their plan design to reduce risk said the potentially negative impact on employee attraction and retention is a "major concern."
The survey found 59 per cent of employers believe workers will find defined benefit plans more valuable in the future, while only 9 per cent thought employees would find them less valuable and 32 per cent said their perceived value will not change.
Towers Watson said the findings are in line with a 2010 global work force study that found a better pension plan is considered one of the main factors that would influence Canadian workers to leave their current employers.Report Typo/Error