Canadian plan funding drops dramatically in Q1

The median funding ratio of Canadian pension plans fell to 89.1% in the quarter ended March 31, down from 102.5% at the end of 2019, according to a survey from Aon.

In March alone, the median funding ratio fell 6.7 percentage points from 96.6% as of Feb. 29, a news release reporting survey results said Wednesday.

The median asset return for the first quarter was -6.6%, while the Canadian 10-year benchmark bond yields fell by 91 basis points and long bond yields fell 38 basis points, increasing pension liabilities by 6.3%.

According to the survey, all equity indexes fell sharply during the first quarter and alternative asset classes global infrastructure and global real estate fell 22.4% and 21.6%, respectively, for the quarter. Falling bond yields drove prices higher but not nearly enough to offset losses in other asset classes, the survey said.

"The first quarter of 2020 is shaping up to be the worst for the Canadian pension plans in more than a decade — perhaps ever," said William da Silva, Canadian practice director, retirement consulting at Aon, in a news release.

"Volatility and lower asset prices will undoubtedly have implications for pension plan sponsors' risk management strategies and for their cash positions," Mr da Silva said. "If they haven't done so already, sponsors need to update their cash-flow projections and review their risk management, and the strategies that are available to manage contributions in the face of deteriorating solvency positions."