Canada Pension Funding Declined in 2014

The collective funding ratio of Canada’s defined-benefit pension plans declined by 2.7 percentage points in 2014, according to Aon Hewitt.

From Benefits Canada:

The median solvency ratio of 449 Aon Hewitt administered pension plans from the public, semi-public and private sectors stood at 90.6% at Dec. 31, 2014.

That represents a decline of 0.5 percentage points over the previous quarter ended Sept. 30, 2014, and a 2.7 percentage-point drop from plan solvency at Dec. 31, 2013.

Since peaking at 96.6% in April 2014, overall plan solvency has declined by 5.9 percentage points, continuing the trend towards worsening plan solvency that began in the third quarter of 2014 (when the solvency ratio dropped to 91.1% from 96.2% in the previous quarter).

About 18.5% of plans were more than fully funded at the end of the year, compared with 23% in the previous quarter and 26% at the end of 2013. Plan sponsors that must file valuations as at Dec. 31, 2014 could see the amount of their deficiency contributions double in 2015 as a result of the lower solvency ratio, says Aon Hewitt.

“Plans that stayed exposed to interest rates really took a beating in 2014,” says William da Silva, senior partner, retirement practice with Aon Hewitt. “Those plan sponsors who have implemented or fine-tuned their risk management strategies performed much better than traditional plans amid interest rate declines.”

Aon Hewitt also said that new mortality tables from the Canadian Institute of Actuaries could lead to a further funding decline in the future.