Since their earliest manifestations in the late nineteenth and early twentieth centuries, Canadian employer- sponsored pension funds have demonstrated growth and evolution that is nothing short of remarkable. Especially in the postwar years, they have grown to become the most sizeable pillar in the national system that provides retirement income security to working people. At the same time, pension funds have emerged as a massive financial sector, now inordinately influential in the economies of most advanced industrialized countries, especially as an owner of - and lender to - large, publicly-listed corporations.
The modern pension experience has been well-profiled by Statistics Canada. Since 1957, it has performed regular surveys of this sector. A second source of aggregate data is the annual survey of the largest 100 pension funds (i.e., above $1 billion in total assets) published by the magazine Benefits Canada for several years.
Employer-sponsored pension funds can be described from many angles. With respect to promised benefits, such may be defined benefit plans, defined contribution plans or hybrids of the two. They may exist for private sector or public sector workforces. Some are contributory (i.e., employees contribute to the cost of benefits along with employers), others are non-contributory. Some are founded on a single employer system while others are organized in a system that unites multiple employers.
Of course, a defining characteristic is the status of plans under Canadian law, as most employers will register these with government regulatory and tax authorities, and most duly-registered plans are funded according to formal trust agreements. In 1996, Statistics Canada reported that trusted pension funds held 90 percent of the assets invested by registered plans and close to two-thirds of all registered monies in plans, whether invested or not. They also reflected the active membership of 3.8 million Canadian workers.Endnote 7
The essential basis of public data collection and analysis by both Statistics Canada and Benefits Canada is this universe of registered, trusted pension funds. Furthermore, both sources tell a similar tale concerning the progress of these funds, including developments in their collective institutional features as well as their rapid accumulation of capital resources under management in recent years.
The following is a brief discussion of the growth of Canadian employer-sponsored pension funds, followed by an introduction to technical matters pertaining to their governance and modes of decision-making. Together these form a necessary prelude to a concluding overview of essential factors that determine pension investment policies, processes and patterns in a contemporary economic context.
Statistics Canada has recorded the development of trusted pension funds at market value (i.e., net cash flow plus capital market appreciation) since 1965 when total assets stood at $6.7 billion. Since then, rates of growth have been brisk, healthy and sustained. Following peaks in the 1970s and 1980s, funds have tended to grow at average annual rates of just over 10 percent. This has meant that by 1998, the asset base of this largest category of employer-sponsored pension funds expanded by seventy-five times its recorded size in the mid-1960s and may well be 100 times larger early in the next century.Endnote 8
Asset growth is determined by the interplay of several variables. These include employer-employee contribution levels, investment revenues and the introduction of new plans. Accelerating rates since the late 1980s can be explained primarily by increased pension asset allocations to public equity (chiefly at the expense of fixed income), which have demonstrated record appreciation and high profits on the sale of securities. Of equal importance is what might be described as a "restructuring" within the wider galaxy of employer- sponsored pension funds.