DB pension plans remain stable in Q2, Mercer says

Canadian defined benefit (DB) pension plans were stable in the second quarter after a Q1 recovery that followed the market dip late last year, according to metrics from Mercer Canada.

The Mercer Pension Health Index, which measures the ratio of assets to liabilities for a model pension plan, was at 106% on June 30, unchanged from the end of March and up from 102% at the start of the year, the consulting firm said.

The median solvency ratio of the pension plans for Mercer’s client base was 97%, the same as at the end of the first quarter. More than one-third of Canadian pension plans are fully funded and only 3% are below 80% funded, the firm said.

The high point in the quarter was at the end of April, Mercer said. Declining interest rates have since increased liabilities, though strong equity markets have prevented the fall of funding positions. Long-term interest rates dropped by 20 basis points in the second quarter.

“Strong equity market performance has protected many otherwise exposed Canadian pension plans from a large swing in long-term interest rates in 2019,” said Andrew Whale, principal in Mercer Canada’s financial strategy group, in a release.

Plan obligations and risk exposure “still remain unsuitably large for many plan sponsors,” Whale added. While funded positions are at high levels, sponsors should take the opportunity to evaluate their de-risking strategies, the firm said.

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