According to the Financial Services Regulatory Authority of Ontario (FSRA), during the first quarter of 2020, defined benefit (DB) pension plans experienced the most significant quarterly decline in projected solvency ratios since December 2009.

FSRA monitors the solvency funding position and publishes the estimated solvency ratios of Ontario DB pension plans each quarter.

As of March 31, 2020, negative investment returns resulted in significant declines in market values, while decreasing discount rates pushed solvency liabilities higher.

All told, this resulted in the median projected solvency ratio declining to 85 per cent, down from 99 per cent at the end of 2019. The percentage of plans with a solvency ratio greater than 100 per cent declined sharply to 14 per cent, down from 48 per cent at the end of 2019. The number of plans with solvency ratios below 85 per cent, on the other hand, jumped to 51 per cent, up from 10 per cent at December 31, 2019. FSRA says it is observing wide variations in how different pension plans have been affected by the pandemic.

“The projected solvency position of pension plans deteriorated significantly in the first quarter of 2020,” say authors of FSRA’s quarterly report.  The drop is attributable to negative first quarter pension fund investment returns, and a decrease in solvency discount rates. “The non-indexed commuted value rates and annuity purchase rates have decreased between 20 basis points and 58 basis points since last quarter.” they add.