Health of Canadian DB Plans Reaches Record Level

Research from consulting firm Mercer shows that this improvement, noted during the fourth quarter of 2013, was the result of strong stock markets and rising long-term interest rates, according to a news report on Globalpost.com.

Mercer’s Pension Health Index, which tracks the funded status of a hypothetical DB plan, was at 106% as of December 31, 2013, for Canadian plans, its highest level since June 2001. The index was at 82% in January 2013 and 98% in September 2013.

Index-related estimates found that almost 40% of Canadian DB plans were fully funded at the end of 2013, compared with 6% at the beginning of the year. The news report also cites research from insurance and consulting firm Aon Hewitt, which estimated the average solvency funded ratio of DB plans increased to 93.4% during 2013. This ratio is 24.8 percentage points higher than a year ago.

Aon Hewitt figures also show that about 26% of plans surveyed were more than fully funded at the end of fourth quarter 2013, compared with 3% at the end of 2012. The news report also cites Mercer estimates that a one percentage point increase in long-term interest rates would reduce the liabilities of most Canadian DB plans by 10% to 15%.

The health of DB plans has been a key issue for many of Canada’s largest corporations, says the news report, as record low interest rates have driven up the liabilities of plans and forced companies to make large contributions.