moneysense.ca, 10/12/09
The top 22 pensions in danger
Is your pension in danger? MoneySense rates the defined benefit pensions offered by 181 public companies
Top 22 pensions in danger
- Ballard Power Systems Inc
- Bombardier Inc.
- Breakwater Resources Ltd
- Catalyst Paper Corp
- CCL Industries
- Cinram International Income Fund
- Cogeco Cable Inc.
- Connacher Oil and Gas Ltd
- Emera Inc.
- Extendicare Real Estate Investment Trust
- IESI-BFC Ltd.
- Intertape Polymer Group Inc
- Methanex Corp.
- Nexen Inc.
- Norbord Inc
- Northstar Aerospace Inc
- Patheon Inc
- RioCan Real Estate Investment Trust
- Timberwest Forest Corp
- Timminco Ltd
- Wescast Industries Inc
- Zarlink Semiconductor Inc
Top 5 underfunded pensions (%)
- Wescast Industries Inc
- Cinram International Income Fund
- Timberwest Forest Corp
- RioCan Real Estate Investment Trust
- Extendicare Real Estate Investment Trust
Thanks to last fall’s market crash, Canada’s corporate pension plans are in worse shape than they’ve been in years. Collectively, they are underfunded by $50 billion, but the health of individual pensions varies considerably.
To help you find out if you should be concerned about your pension, we’ve rated the defined benefit pensions offered by 181 public companies. Since your pension is most at risk if your company goes bankrupt while your plan is underfunded, we based our rating system on just two numbers: the percentage by which a plan is underfunded, and the risk that the company will go bankrupt. The percentage underfunded amounts come right off the financial statements of the companies listed. To gauge the possibility of bankruptcy, we used a fundamental analysis tool called the Altman Z-Score.
We recommend you use this chart as a starting point to educate yourself about your company’s pension plan. A danger rating doesn’t necessarily mean your pension is in trouble. There may be other factors that affect your pension’s viability that we haven’t taken into account. However, if you are concerned, you may want to call up your company’s pension plan manager to get some answers.
How our ratings work
Safe: A company’s pension was deemed to be Safe if the plan was fully funded or underfunded by less than 20%. As well, it had to have an Altman Z-Score of 1.8 or higher (for some companies we used alternate scores, see below). For financial institutions, where no Altman Score is available, the pension plan is Safe if it’s fully funded or underfunded by less than 20%.
On Alert: We put a company’s pension plan On Alert in two different scenarios. In the first, the pension plan is underfunded by 20% or more and the Altman Z-Score is 1.8 or higher. In the second, the pension is underfunded less than 20% but the Altman Z-Score is below 1.8. Banks were given this rating if the pension is underfunded by an amount between 20% and 50%.
Danger: All pension plans underfunded by 50% or more got a Danger rating. We also deemed there to be potential trouble if the plan is underfunded by 20% or more and the Altman Z-Score is below 1.8.
Which Altman Score did we use?
The original Altman Z-Score is used for manufacturers. For service companies we used the Altman Z”-Score. For resource companies, we used the Z-Score but added in the bond rating. In the chart, if there is no asterisk next to the Altman Score, we used the Z-Score and a cutoff of 1.8. One asterisk means we used the Z”-Score and a cutoff of 1.1. Two asterisks mean we used the Z-Score plus bond rating, and a cutoff of 1.8.
The Altman Z-Score has proven to be an accurate predictor of bankruptcy, but it doesn’t work equally well for all sectors. There is no reliable way to calculate the score for banks, for instance, and utilities tend to score low, regardless of whether they are financially sound.
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moneysense.ca, 10/12/09
