Canada Post pension plan 2010 financial results

Canada Post announces the 2010 financial results for the Canada Post pension plan (the Plan). The Plan’s rate of return was 10.4 per cent in 2010, exceeding its benchmark rate of return of 9.8 per cent.

The Canada Post pension plan (the Plan) ended 2010 with total net assets available for benefits of $15.376 billion, an increase of $1.8 billion from 2009.After experiencing losses in 2008 due to the global economic crisis, the Plan rebounded with double-digit returns in both 2009 and 2010 to reach its highest level of assets since the Plan’s inception in 2000.

The Plan is one of the largest single employer pension plans in Canada, with nearly 82,000 active members, pensioners, deferred members and beneficiaries. It represents an important element of employees’ overall compensation.

“For the second straight year, the Plan achieved solid investment returns as it was well positioned with its investment strategy to take advantage of the recovering global financial markets,” said Douglas Greaves, Vice-President, Pension Fund and Chief Investment Officer. “However, despite these strong returns, the Plan has an estimated solvency deficit and going-concern deficit at the end of 2010.”

While the Plan’s rate of return was 10.4 per cent, Canada Post, like many other pension plans, continues to face funding shortfalls caused by the 2008 global economic downturn and historically low discount rates. Discount rates are long-term interest rates used to calculate pension liabilities. The discount rates declined further in 2010, causing an increase in pension liabilities that exceeded the Plan’s investment returns. As a result, the Plan ended the year with an estimated solvency shortfall of $3.22 billion, representing a solvency ratio of 83 per cent, and an estimated going-concern shortfall of $174 million, representing a going-concern funded ratio of 99 per cent.

Based on the financial status of the Plan as at December 31, 2010, an actuarial valuation will be filed with the federal pension regulator by June 2011. Canada Post made $425 million in special solvency payments to the Plan in 2010 in addition to its regular contributions, and will have to increase its special solvency payments in 2011 after the valuation is filed to help erase its deficits. Since the going-concern deficit is small, it is anticipated that this can be eliminated quickly through the special solvency payments and the market performance of the Plan.

“As the Plan sponsor, the financial risk of the Defined Benefit component of the Plan rests solely with Canada Post. The best security for Plan members is a financially sustainable Plan sponsor,” said Deepak Chopra, President and CEO. “Management and the Board of Directors of Canada Post continue to work hard to protect the pensions of Plan members by making the necessary changes to ensure that Canada Post remains financially sustainable.”