By Gilbert Le Gras
OTTAWA, June 25 (Reuters) - Corporate retirement funds are low on money and Canadian firms may have to draw on their cash flows to pay pensions, the Bank of Canada said on Wednesday.
"The unfunded portion of corporate pension plans represents a potential claim on the cash flow of corporations, although the magnitude and timing are often unclear," a bank study warned. "Among the countries most heavily affected are Canada, the United Kingdom and the United States."
The central bank study cited reports suggesting more than 100 top firms face an overall pension shortfall of about C$19 billion ($14 billion) but could not vouch for their accuracy.
Canada's federal regular, the Office of the Superintendent of Financial Institutions, now has about 75 corporate pension plans on its watch list, up from 50 late last year, but it did not disclose company names or economic sectors.
The central bank study did point to some areas of vulnerability.
"A significant portion of the underfunding is concentrated in certain industries; for example, those with relatively 'mature' plans, where significant payouts are likely to occur at an earlier stage (e.g., the North American automotive sector)," the Bank of Canada study said.
One difficulty in quantifying the magnitude of the problem are the actuarial assumptions made in calculating firms' pension liabilities, the study added.
The issue is a "major concern" to lawmakers, as well, with Richard Kroft, who took charge of the Senate banking committee this week, planning to plumb the views of Nicholas Le Pan, the federal superintendent of financial institutions.
"I'm sure we will be, because it's a major issue," Kroft told Reuters on Wednesday.
Le Pan said last month there is no way regulators can guarantee that Canadians' pension savings are safe.
A study for the Association of Canadian Pension Management released last month found underfunding of corporate pensions hit an estimated C$225 billion, or nearly one-fifth of gross domestic product.
That study by Mercer Human Resource Consulting, Watson Wyatt Worldwide and Towers Perrin, surveyed 1,029 public and private pension plans with a total of C$275 billion in assets, at the end of 2002.
($1=$1.35 Canadian)