The solvency of Canadian public and corporate defined benefit plans improved in 2017, obtaining a respectable medium of 97% funded status as reported by Mercer Canada. Mercer’s pension health index, which covers 604 Canadian plans, showed marked improvements from September 30 with funding levels reaching 106% at the end of the fourth quarter- the ratio was up 4% from the beginning of the year.
The new release cites that funded status spikes were due to stable market conditions within the equity section of the market.-The Most significant gains were observed in the fourth quarter. This was nevertheless offset by lessened increases due to the decreases in long-term interest rates, falling 30 basis points in the quarter.
US equities garnered a 6.6% return in US-dollar terms while obtaining 6.8% in Canada –dollar terms. International investments returned 3.7% in local currency and 4.5% in Canadian dollars. Mercer reported that the higher Canadian -dollar returns were a result of the Canadian dollars q4 depreciation against the US dollar, British pound and euro.
“Canadian DB pension plans are better funded now than they have been for most of the past decade,” Manuel Monteiro, leader of Mercer Canada’s Financial Strategy Group, said in a statement.
Mr. Monterio also indicated that all plan sponsors should be on notice to review their risk management strategy in light of new funding rules released in December. “Many sponsors of closed and frozen plans will likely continue reducing risk with an ultimate goal of eliminating their defined benefit liabilities. However, other pension plan sponsors will view the new rules as an opportunity to continue to take the risk in the expectation of reducing the long-term cost of their pension plan,” Monteiro said.
The healthy state of Canadian pensions stands in stark contrast to those of many US state pension systems. Maybe for once we could learn something from our northern neighbor.