Some related articles :
Most Pension Plans in the Red, Study Says
at two-thirds of Canada's blue-chip firms are deep in the red following a
dismal year that shattered the return expectations of most actuaries,
according to a Bay Street report released yesterday.
Accountability report from Caldwell Securities looked at 46 Canadian firms
and shows only eight generated positive returns in the year ended March
31, and only two firms had returns above expectations. The biggest losses
were recorded at Alcan Inc., Nortel Networks Ltd., Bombardier Inc. and
Canadian Imperial Bank of Commerce -- all of which saw losses in the
hundreds of millions of dollars.
call into question the companies' expected return estimates of 7% to 10%,
and suggest estimates should be ratcheted down to the 6%-to-8% rate that
fund managers say is a reasonable, average rate of return over five years.
value investor Warren Buffett recently cut pension assumptions to 6.5% for
several companies owned by Berkshire Hathaway Inc. -- a move that would
carve billions of dollars from Canadian corporate profits if implemented
by all of this country's large-cap stocks.
follows on a warning from National Bank of Canada strategist Martin
Roberge this year that Canadian firms will face a funding gap of
"alarming proportions" if they continue to use unrealistic
return expectations. However, projections will likely not be revised for
another year or two because of three-year actuarial valuation cycles.
worst-funded pension in the study was at Magna International Inc., with
only 25% of total obligations covered by assets. Bombardier, with only 68%
of current obligations covered by assets, topped the underfunded list to
the tune of $1.6-billion.
retailers were among the most overfunded, with assets at Hudson's Bay Co.
covering 146% of obligations for $426-million in excess funds, and Sears
Canada looking at a surplus of $271-million, despite returns in the year
to March 31 falling significantly short of expectations.
overfunded pensions appear to be a positive, they can serve to bloat and
inflate income, thereby making year-over-year income comparisons
In fact, the
report concludes that loose Canadian pension rules and tolerant,
investor-unfriendly auditors make year-over-year earnings' comparisons
inaccurate and meaningless. "The sad part is that Canadian accounting
is full of pension-like sloppy rules, and golden opportunities to play
with the numbers. Having an auditor attest that the loose rules were
followed adds nothing to help investors," wrote the study's authors
Mark and Al Rosen of Rosen & Associates.
Al Rosen, who
is currently in the public eye for his controversial audits of school
boards in Ontario, said that accounting rules have yet to be tightened in
the aftermath of "Enron and the clones."
energy trader Enron Corp. lost at least US$1-billion from their retirement
plans when the company went bankrupt after management concocted a
still-under dissection confidence scheme.
has done virtually nothing worthwhile this year to force independent rule
setting, and to have serious enforcement," wrote Mr. Rosen and his
Inc., EnCana, Sun-Life Financial, Telus Corp. and the aforementioned
retailers all show pension surpluses, and were among 10 other firms in the
study that used these gains to offset expenses and increase operating
plan augmented earnings to the tune of $275-million, while Telus saw a
benefit of $54-million and Hudson's Bay $17-million, the report said.
possible that many Canadian companies have generated NO real earnings in
the past 10 years.? It seems so," wrote Mr. Rosen.
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