The median solvency ratio of Canadian defined benefit pension plans stood at 80.8% as of Feb. 29, a decline of 2.1 percentage points from the ratio on the first of the month, according to Aon Hewitt.
Its Pension Plan Solvency Survey, which tracks the performance of 449 Aon Hewitt-administered DB pension plans, found that only 7.6% of surveyed plans were more than fully funded at the end of February, down from 8.5% on Jan. 1.
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The survey also found that 10-year Canadian and U.S. Treasury yields declined in January by about 10 basis points and 20 basis points, respectively. The net impact of declining yields was a 1.7 percentage point drop in the median solvency ratio.
“The challenges for pension plans continued in February,” said Ian Struthers, partner in the investment consulting practice at Aon Hewitt. “The good news was that Canadian equity returns stabilized somewhat, and the TSX outperformed both the S&P 500 and the MSCI World Index, but there was no cover in alternatives with drops in real estate, infrastructure and commodities.
“With these asset classes in negative territory and rising bond yields increasing plan liabilities, solvency suffered. A patient, long-term view focusing on diversification and disciplined risk-seeking is the best strategy for plan sponsors to work their way through choppy markets.”
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