The funded status of Canadian corporate and public defined benefit plan clients of Aon Hewitt rose to 88% as of Sept. 30, up from 77% three months earlier and 69% at the end of 2012.
Total assets for the more than 275 DB plans were C$119.1 billion (US$115.3 billion), and combined liabilities were C$135.9 billion.
The third-quarter funded status was the highest since the 86% combined funded status reported in the fourth quarter 2009.
Separately, Mercer reported its Pension Health Index was at 98% as of Sept. 30, up from 94% on June 30 and 82% as of Dec. 31. The index tracks the funded status of the typical Canadian DB plan based on 100% funding as of Jan. 1, 1999.
The index is at the highest level since July 2007 when it hovered around 100%.
Both reports said the latest increases were powered by stronger equity returns and higher long-term interest rates.Will da Silva, senior partner, retirement practice at Aon Hewitt, said the higher funding ratio means minimum required contributions will decrease in 2014 and beyond.
“The significant improvement of solvency ratios in Canadian plans means that the average Canadian DB plan has erased more than 50% of its solvency deficit since the beginning of the year,” Mr. da Silva said in a news release. “The potential reduction in contributions gives sponsors greatly increased financial flexibility as it not only reduces the level of required contributions, but it could also provide some plan sponsors with cost certainty over the coming years.”
However, Manuel Monteiro, partner in Mercer's financial strategy group, said in a separate news release that new guidance from the Canadian Institute of Actuaries significantly increases solvency liabilities for pension funds that automatically index pensions based on consumer price index increases, which negate most of the positive impact of equity returns and interest rate increases in 2013 for fully indexed plans.
“While the changes to the actuarial guidance primarily affect the minority of Canadian pension plans that automatically index pensions, the impact on many of those plans is very significant,” Mr. Monteiro said.