The health of Canadian defined benefit (DB) pension plans reached an 18-year high in the third quarter of 2018 (Q3 2018), according to a report published Monday by consulting firm Mercer.
The Mercer Pension Health Index, which measures pension solvency, came in at 112% at the end of Q3 2018, up from 106% at the start of the year.
More than 60% of Canadian pension plans are now fully funded, says Mercer in a news release, with less than 5% of plans currently below 80% funded. Overall, the funded position of Canadian DB plans is at its highest level since November 2000, Mercer says.
Solvency was boosted by an increase in long-term interest rates in the third quarter, along with robust U.S. and international equity markets (up 5.8% and 3.3%, respectively, in Canadian dollar terms).
These factors helped overcome the lagging Canadian equity markets, which lost 0.6% during the quarter, along with Canadian fixed income markets, which were also down. The firm notes that long-term bonds in Canada returned -2.4%, and real return bonds recorded a 2.2% decline in Q3.
As a result of these improved solvency positions, some plan sponsors are altering their investment approach. Plans that are still open are considering added investment risk, Mercer says. For closed plans, the firm suggests this may be a good time “to take risk off the table, either by changing the asset mix or through risk transfers.”