While the funded position of a typical defined benefit pension plan increased on a solvency basis in November, it decreased on an accounting basis in that period, according to the latest pension index from Telus Health.
It found the solvency of the average DB plan rose to 109.1 per cent in November, up from 108.2 per cent in October. The balance sheet index, which is an indication of changes in the accounting funding level of an average plan since the start of the year, declined from 102.8 per cent in October to 100.4 per cent in November.
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For a representative pension plan portfolio, the investment return was 6.7 per cent for the month, attributed to positive returns in equity markets. The MSCI ACWI returned 6.7 per cent, while the Canadian S&P/TSX composite returned 7.5 per cent.
“Financial markets were volatile in November, with superb returns from equity and fixed income asset classes, but an associated fall in bond yields,” said Murray Wright, associate partner in the retirement and benefits solutions practice at Telus Health, in a press release. “This led to a material increase in accounting and solvency liabilities for Canadian pension plans. Pension plan sponsors with newly discovered surplus positions should see the market movements in November as a reminder to revisit their long-term funding and investment strategies to make sure they are well placed for 2024.”
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A separate report by Normandin Beaudry found the average DB pension plan funded ratio declined to 117 per cent in the fourth quarter of 2023, down one per cent from the previous quarter and two per cent from the beginning of last year. The solvency ratio for the average DB pension plan was 110 per cent, down one per cent from the previous quarter but up three per cent since the beginning of 2023.
Gains were offset by an increase in value of pension plan liabilities. During the quarter, bond market interest rates fell one per cent, which had a downward impact on discount rates. As well, the decrease in discount rates led to significant increases in current service costs.
“Pension plans are currently in good financial shape thanks to the financial markets and an economy that proved resilient despite the events of the past three years,” said the report.
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