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Pension Plan Risk Management in Canada

Author(s): Jana Steele, Ian McSweeney

August 2014

Pension plans, and their members and sponsors, face various risks, including investment, inflation, funding, longevity and regulatory risks. Where a plan sponsor takes action aimed at addressing or minimizing one or more of these risks, this is known as de-risking or risk management. De-risking or risk management may take various forms along a broad spectrum of options, from LDI, asset allocation and other investment strategies to plan design changes and risk transference strategies.

An increasing number of public and private sector employers around the world are either abandoning the traditional defined benefit (DB) pension plan model in favour of more affordable and sustainable alternative arrangements, such as defined contribution or other capital accumulation plan arrangements, or are doing away with their employer sponsored retirement plans altogether. In the private sector, such action often requires country subsidiaries and affiliates of large multi-nationals to adopt head office’s global pension strategies which can include a broad spectrum of investment and plan design options, in addition to traditional plan termination.

This article explores what options are available to Canadian sponsors and administrators in their search to find suitable ways to de-risk volatile DB pension obligations and what Canadian governments and regulators are doing to expand the available risk management tools while at the same time adequately protecting stakeholder interests.
 

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Reproduced with permission from International Pension Lawyer. This article was first published in International Pension Lawyer: Journal of the International Pension and Employee Benefits Lawyers Association vol. 81, August 2014.

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