Defined benefit pension plan solvency showed continued improvement in fourth quarter: Survey

Survey found 24.8 percentage point improvement from 2012
||Last Updated: 01/03/2014

Canadian defined benefit (DB) pension plan solvency continued to improve into the fourth quarter of 2013, ending the year with a 24.8 percentage point improvement from December 2012, according to the latest survey from Aon Hewitt.

The quarterly survey of more than 275 pension plans from public, semi-public and private sectors also saw the median solvency funded ratio increase to 93.4 per cent by the end of December.

"Last year saw a remarkable turnaround and we ended with the highest median solvency ratio in six years and more than 28 percentage points higher than it was in mid-2012," said Will da Silva, senior partner, retirement practice at Aon Hewitt. "During the year, the Canadian Institute of Actuaries issued guidance affecting some plans that offer benefits indexed to inflation to retirement. Depending on the province where the plan is registered, some indexed plans may not have seen as much of the improvement in the solvency ratio as the median plan."

Plan sponsors may want to start considering end-game options such as full immunization of plan assets to plan liabilities, partial settlement of retiree liabilities or full plan wind-up, said da Silva.

Close to 26 per cent of the plans in the survey were more than fully funded by the end of the year, compared to 15 per cent in the third quarter and three per cent at the end of 2012.

Key contributing factors to increased solvency included improved equity market returns, higher long-term interest rates and sponsor contributions toward solvency funding requirements.

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