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Pension Funds

Canadian DB plans see little funding change in second quarter – report

Canadian public and corporate defined benefit plans that are clients of Mercer Canada had a median funded status of 93% as of Tuesday, unchanged from both three months ago and the start of 2017.

Mercer's pension health index, which tracks the typical Canadian defined benefit plan based on 100% funding as of Jan. 1, 1999, was 103%, up a percentage point from the 102% in both the first quarter and the start of the year, according to a Mercer report issued Wednesday.

Foreign equity market performance helped offset a 20-basis-point drop in long-term interest rates that increased pension liabilities by up to 3% since the end of March.

Foreign developed equities, which returned 4.3% in local currency for the quarter, returned 5.6% in Canadian dollars on an unhedged basis. U.S. equity returned 2.9% in U.S. dollars and 1.7% in Canadian dollars, while emerging markets returned 6.9% in local currency terms and 5.7% in Canadian dollars.

Canadian equities, meanwhile, slumped in the second quarter, down 1.7%, "driven mostly by the energy and the materials sectors, which experienced a setback," Sofia Assaf, principal and senior investment consultant at Mercer Canada, said in the release. Canadian energy equities declined by 7.7% and materials fell 5.1%.

"Despite yet another decline in long-term interest rates, most DB pension plans remain in strong financial shape," Manuel Monteiro, partner and leader of Mercer Canada's financial strategy group, said in the release. "However, those plans with large allocations to Canadian equities and lower hedges against interest rate movements will have experienced some deterioration in the second quarter".