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Canadian pension funding soars to end 2016 — 2 reports

Canadian public and corporate pension plans ended 2016 on a high note in terms of solvency, according to two reports.

Canadian plans tracked by Aon Hewitt had a median funding ratio of 94.9% as of Jan. 1. That’s up 10.3 percentage points from Sept. 30 and 8.8 percentage points higher than the start of 2016.

Meanwhile, a Mercer report showed that its pension health index, which tracks the typical Canadian defined benefit plan based on 100% funding as of Jan. 1, 1999, was at 103% as of Dec. 19, the latest date the firm monitored. That’s above the 92% both on Sept. 29 and at the start of 2016.

Among Mercer pension plan clients, the median funded status as of Dec. 19 was 93%, 8 percentage points above the percentage both as of Sept. 29 and Jan. 1, 2016.

According to the Aon Hewitt report, 35.2% of plans ended the year fully funded vs. 12% as of Sept. 30 and 10.7% at the beginning of 2016.

Both reports attributed the fourth-quarter improvement in funding ratios to market gains after the election of Donald Trump on Nov. 8.

“The recent runup in long-term interest rates and new equity market highs couldn’t have come at a better time for Canadian defined benefit pension plan sponsors,” said Manuel Monteiro, partner and leader of Mercer’s financial strategy group. “The election of Donald Trump seems to have cushioned the blow that many plan sponsors were bracing for in 2017.”

Ian Struthers, partner and investment consulting practice director at Aon Hewitt, said last year “was a remarkable turnaround story for markets and for Canadian DB pension plans. … The fourth quarter made all the difference, and it was not all about the U.S. equity market rally. The steep rise in bond yields since September, and the robust equity markets despite Brexit, had a remarkably positive impact on pension solvency.”