Underfunded private pension plans a concern for Central Bank, FSC

The growing number of underfunded private pension plans requires urgent attention, Central Bank Governor Dr Kevin Greenidge said on Monday.

And Chief Executive Officer of the Financial Services Commission (FSC) Dr Warrick Ward assured it’s a matter that is engaging his team, even as he highlighted other red flags in the sector.

The two officials were addressing the annual Eckler Pension Investment Conference which attracted over 150 trustees of pension plans and other top officials.

According to Greenidge, of the 248 registered occupational pension plans, approximately one-quarter were underfunded on both a going concern and solvency basis.

“As at December 2022, there were 61 underfunded pension plans on the going concern basis and 65 on a solvency basis, with a combined deficit of $319.5 million. The deficit may be due to insufficient contributions towards benefits (and expenses) and investment losses. We need to fund these gaps given the falling birth rates and increasing longevity risk,” he said during his virtual presentation.

Ward later supported the governor’s concerns, disclosing that assessments of some pension plans by actuaries revealed that some were significantly underfunded. He said that while the FSC had implemented a payment plan, some trustees were lagging in payments.

“So, there are plans where there are agreements, they have agreed to make these regular contributions such that the plan becomes funded within X period of time. A lot of the time, these are not being met. We want to ensure that special payments [are made] to the plans, those plans that are in deficit,” he said.

Of equal concern to the FSC is the number of non-compliant pension plans and “insolvent plans”.

Referring to the latter, Ward said, “We would like to see these numbers come down quite a bit.”  

He cited cases where companies closed operations but left pension plans unattended.

“We would want plan sponsors and the trustees to also look at making sure that the plans are wound up. So we have, for example, companies that go out of business for one reason or the other, and basically, their plans are not wound up or there are issues with winding up their plans. This could have a fairly significant impact on plan members because that money is tied up…. That money could have been placed in another plan and be properly managed and earning interest. Oftentimes, like this, it is not optimally managed or governed,” Ward added.

The FSC boss also urged companies to submit their statutory filings, pay stipulated fees and report their statement of investment policies and goals which outlines the types of investments contemplated and how well the portfolio is diversified.

“So it provides that layer of transparency for all parties involved – the sponsor, the trustee, the plan member, as well as the administrator so that everyone is on the same page,” he explained.

Ward added that while the FSC granted some leniency during the COVID-19 pandemic with respect to annual payments, statutory filings and other matters, it was time for trustees to refocus and ensure plans are compliant with regulatory requirements.

“And so, once again, we implore you, those of you who know that you have outstanding things for us things like actuarial reports, etcetera, there is a set time you’re supposed to send those to us and sometimes we haven’t seen any for quite a long time. We don’t want to rely on punitive measures. So we sort of have been doing what many would say, for 12 years, moral suasion, trying to get people to come in and assist, but we have to stop at some point,” the FSC CEO said. 

(SD)