Pension advisory firms say Q4 stock plunge hurt defined-benefit plans
Two of Canada's largest pension advisory firms say the financial health of defined benefit plans was eroded in the fourth quarter by a combination of weak stock markets and low long-term interest rates.
Mercer Canada and Aon each concluded in separate reports Thursday that fewer than half of the country's defined benefit pension plans were fully funded at the turn of the new year.
Mercer Canada estimated that less than 30 per cent of Canadian defined pension plans were fully funded at the end of 2018, while Aon estimated 38.5 per cent of plans were fully funded as of Jan 1.
The Mercer Pension Health Index,based on a hypothetical, model plan, dropped to a solvency ratio of 102 per cent at Dec. 31 from 112 per cent at Sept. 28 and from 106 per cent at the beginning of 2018.
Meanwhile, the Aon Median Solvency Ratio fell in the fourth quarter to 95.3 per cent as of Jan. 1, 2019, a decline of nearly eight percentage points from the third quarter of 2018.
A solvency ratio of 100 or more indicates a plan is fully funded while anything less indicates there would be some shortfall if a plan had to be wound up, often a worst-case scenario for defined benefit plans.