With lower long-term interest rates afoot, the solvency of Canadian defined benefit plans fell from July to September – the first slip in two years, according to research from global human resources player Aon Hewitt.
In its latest pension plan solvency ratio survey, Aon found that overall plan solvency ratio dropped by more than four percentage points from the second quarter to the third, the first decline in plan solvency since June 2012. This was mitigated somewhat by decent equity market returns and pension plan contributions, however, and plans with a de-risking strategy proved less sensitive to rate declines.
More than 275 Aon Hewitt-administered pension plans from the public, semi-public and private sectors participated in the survey. As of September 26, their median solvency funded ratio stood at 91.1 percent, showing a decline of 4.9 percentage points over the previous quarter and a 5.5 drop from the peak of 96.6 percent in April 2014. However, it was a 3.1 percent increase over the same quarter last year.
“Canadian (defined benefit) plans have strung together a nice run of winning quarters, but as we have been saying for some time now, market volatility continues to present significant risks and plan sponsors should be implementing or fine-tuning their de-risking strategies in order to stay current and optimized in the face of ever-changing capital market conditions,” Aon Senior Partner-Retirement Practice William da Silva said in a statement. “Overall Canadian plan solvency is still relatively strong compared to where things stood just a few years ago, so there is still time to act.”
You Might Also Like…
Key pension dispute ends
Defining your benefits
The future of retirement: target benefit plans?