The funded status of Canadian public and corporate defined benefit pension plans improved in the second quarter, in part because of a rise in interest rates, according to two separate reports.
The median funding ratio of 275 Canadian DB plans surveyed by Aon Hewitt was 77% as of June 30, up from 74% on March 31.
Meanwhile, Mercer's Pension Health Index, which assumes a DB plan was 100% funded in 2009, was at 94% on June 30, up from 87% as of March 31.
Both reports said the decline in bond rates provided a boost when equity markets generally were mixed, with declines in Canadian and emerging markets equity performance.
“The financial position of pension plans improved in June despite the recent pullback in equity markets. This was mainly driven by the significant increase in long-term bond yields over the last two weeks,” said Manuel Monteiro, partner in Mercer's financial strategy group.
Long-term Canadian government bond yields were flirting with 3% at the end of June, up from 2.3% at the beginning of the year and 2.5% at the end of May.
“Normally, lackluster market performance means bad news for pension plans but, in the latest quarter, the increase in interest rates helped improve the situation for plan sponsors,” said Ian Struthers, partner, investment consulting practice, Aon Hewitt Canada.