The Impact Of Pension Deficits

Pension plan sponsors have been facing ongoing difficulty with defined benefit pension plans due to persistently low interest rates and volatile capital markets along with changing accounting standards. While it is unlikely that pension plan issues will break a corporate deal, it is an important consideration when valuing an enterprise and considering what future obligations may exist.

A recent report by Mercer estimates that only one in twenty defined benefit pension plans were fully funded as of December 31, 2012.¹ Furthermore, the Office of the Superintendent of Financial Institutions (OSFI) had over 125 pension plans on its "watch list," a list of pension plans that give rise to serious concerns based on their financial condition. This number is considerably higher than the 49 plans that were on the list at the end of March, 2011.²