Canadian public and private defined benefit plans’ funded status took a one-two punch this quarter from equity and interest rate volatility, said two reports issued Monday.
The 449 Canadian plans administered by Aon Hewitt had a median funded status of 87.6% as of Sept. 24, down 5.3 percentage points from the end of the second quarter and 3.5 percentage points below the median of 12 months ago.
Meanwhile, the Mercer Pension Health index — which tracks the typical Canadian DB plan based on 100% funding as of Jan. 1, 1999 — was 93% as of Sept. 24, down from 98% as of June 30 and 94% as of Jan. 1. The median solvency ratio of the pension plans of Mercer clients stood at 87%, down from 92% as of July 1 and 90% at the beginning of the year.
In the Aon Hewitt report, 13.6% of plans were more than fully funded, down 12.9 percentage points from the second quarter. The median funded status has declined in four of the last five quarters, with only the second quarter 2015 in positive territory.
A typical balanced pension fund portfolio would have returned -2.3% during the third quarter through Sept. 24, Mercer said in a news release. U.S. equities returned -5.9%; EAFE markets, -10%; and Canadian equities, -7.7%.
Long-term bond yields were hurt by the Bank of Canada’s 25-basis-point cut in interest rates in July and the U.S. Federal Reserve’s decision not to raise the federal funds rate, Aon Hewitt said in a separate release. Long-term Canada bond yields fell by 5 basis points from July 1.
