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Pension Funds

Canadian pension funds still nearly 100% funded – 2 reports

Canadian public and corporate defined benefit plans remained close to 100% funded in the first quarter 2018, although two reports showed plan funding went in slightly different directions.

The median solvency ratio of Canadian plans was 98.7% as of Sunday, according to Aon Hewitt Investment Consulting, down from 99.2% at the end of 2017. Forty-six percent of Canadian plans were fully funded as of April 1, vs. 47% as of Dec. 31.

Meanwhile, Mercer (Canada) said Canadian plans were a median 98% funded as of March 30, up from 97% as of Dec. 31. Also, the Mercer Pension Health index, which tracks the typical Canadian defined benefit plan based on 100% funding as of Jan. 1, 1999, was 106% as of March 30, unchanged from the beginning of 2018.

A 5-basis-point increase in Canadian 10-year bonds helped funding in the first quarter, Aon Hewitt and Mercer said in separate news releases.

"The funded position of a typical Canadian defined benefit pension plan remains up almost 20% since the November 2016 U.S. election," said Manuel Monteiro, partner and head of the financial strategy group at Mercer (Canada), in Mercer's news release.

Despite an increase in equity volatility in the first three months of the year, there was only a minimal impact on funding positions, Mercer said. However, Sofia Assaf, principal and senior investment consultant at Mercer (Canada), said in the release, "We have observed a heightened level of volatility in the markets over recent periods. Investors are showing sensitivity to headwinds of tighter monetary policy, trade protectionism and geopolitical uncertainty, and we anticipate volatility to ensue over 2018 as a result."

Ian Struthers, partner and investment consulting practice director at Aon Hewitt, said in Aon's news release that the first quarter was a reminder for pension plans "of the roller coaster of volatile markets, and a preview of what we expect to be a more volatile investment landscape in 2018. We have seen some recovery in equity markets from the February sell-off, but there are lots of reasons to expect more volatility.