For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.
North American Pensions See Marginal Funding Improvement in Q310
An Aon Hewitt news release said strong equity markets—up 5% to 10% for the year—helped pension plans regain the losses they experienced in the second quarter. However, the corporate bond rates used for measuring pension liabilities plummeted to less than 5% in August—the lowest in over a decade.
Even after a slight uptick in September, these rates fell between 0.3% to 0.5% from prior quarter levels. As a result, pension liabilities increased by 4% to 6%, negating much of the benefit from strong equity performance.
In Canada, accounting deficits for companies in the S&P/TSX remained relatively unchanged during the third quarter of 2010. Strong asset returns, led by domestic equities, contributed to total assets increasing by more than 7% during the quarter. However, according to the news release, this gain was offset by a significant decrease in corporate bond yields over the quarter, resulting in a 6% increase in liabilities.
The net impact was that average funded ratios for Canadian pension plans only increased incrementally, from 87% at the start of the quarter to 88% at the quarter’s end.
Aon Hewitt monitors and analyzes daily pension funding levels of U.S., U.K., Continental European, and Canadian companies in the S&P 500, FTSE 350, DJ Euro Stoxx 50 and TSX, respectively, through its Pension Risk Tracker tool.