Canadian defined benefit plans’ funding fell in the third quarter, based on the Mercer (Canada) Pension Health index, because of declines in long-term interest rates coupled with an increase in the estimated cost of purchasing annuities.
The index was at 99% as of Sept. 30, vs. 105% on June 30 and 106% at the start of 2014.
Four percentage points of the total quarter decline was attributed to tightening in the annuity market, Mercer said in a news release, while two percentage points were because of the impact of declining interest rates. Asset returns were slightly positive over the quarter but only had a small offsetting impact.
The typical pension fund’s balanced equity and bond portfolio returned 1% in the third quarter and 8.3% in the first nine months of the year.
The index tracks the typical Canadian DB plan based on 100% funding as of Jan. 1, 1999.
