Canadian pension plans ended the year no better funded than at the start of 2007, unless plan sponsors made additional contributions to top them up, according to the Mercer Pension Health Index.

“Poor equity performance in the fourth quarter took its toll on plans’ funded status,” says Peter Muldowney, business leader for Mercer’s investment consulting business in Canada. “A significant contributing factor on investment returns over the year was the impact of the strengthening of the Canadian dollar on foreign equity returns.”

Long-term interest rates also fell back to beginning of year levels, which together with disappointing equity returns led to the index giving back all of the improvements seen in the first half of the year.

In July, the index had briefly attained levels not seen since the fall of 2004. Decreases in the second half of the year resulted in a net loss for the year of 2%.

In each of the past two years, long-term interest rates rose for the first half of the year and then fell back in the second half. “This,” says Paul Forestell, retirement professional leader at Mercer, “means that long-term rates remain low, keeping the value of defined-benefit pension promises expensive.”

A typical balanced portfolio of investments would have returned 1.7% for the 2007 calendar year and 0.0% for the fourth quarter of 2007. This return doesn’t include the impact from active management of any of the assets.

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