Are private pension plans grossly underfunded, or do they contain abundant surplus? Analyses of actuarial data from 1981-82 reach contradictory conclusions. Part of the problem in interpreting actuarial data arises because the actuary, when calculating how much money is needed to meet a plan’s required obligations, bases the estimate on both the facts of the situation and on his or her own assumptions about the future. These assumptions are not the actuary’s “best estimates” of the future; they tend to err on the side of caution, inserting a “cushion,” or margin of safety, that serves as both a contingency reserve and as allowance for periodic improvements in plan benefits.

When the values of the accrued pension obligations of corporations in Canada are estimated by using a common set of best estimate assumptions about the future, rather than the assumptions used by actuaries, the results present a truer picture of the financial status of Canadian corporate pension plans. Actuarial results for the median final average pay type plan show a median funding target of $105 for every $100 of pension fund assets; this means an actuarial “unfunded liability” of $5 for every $100 of assets. But on the basis of best estimates of accrued pension obligations, and taking into account future salary increases, the median plan has obligations amounting to only $76 for every $100 of assets—a funding ratio of 132 per cent. Of the $26 billion of private sector pension assets studied, the surplus in final average, career average and flat benefit plans amounts to some $4.3 billion to $8 billion.