Strong equity returns last year helped Canadian pension plans, according to Mercer Human Resource Consulting.

The Mercer Pension Health Index shows that plan funded ratios increased by about 7%.

“The increase was driven mainly by double-digit equity returns,” says Mercer’s retirement professional leader, Paul Forestell.

The position at the end of 2006 didn’t quite match the high point achieved in May. The improvement then was driven by an increase in long-term interest rates in the first two quarters that resulted in lower pension liabilities.

Unfortunately, those increases were reversed in the second half of the year and long-term rates are back where they were at the end of 2005.

“What the index doesn’t capture is the large cash contributions plan sponsors have making to their plans over the past few years,” he says. “As a result, and especially following a strong investment year, plans will be better funded at the 2006 and some sponsors will be able to reduce their contributions in 2007.”

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