The financial health of Canadian pension plans plummeted in 2008, as stock markets and interest rates declined sharply, according to the <i>Mercer Pension Health Index</i>, which fell to 59 per cent, down 23 per cent from the beginning of the year.
“Pension plans experienced substantial losses on both sides of the balance sheet, with lower long-term interest rates increasing liabilities,” said Paul Forestell, retirement professional leader at Mercer. “The new rules for determining the lump sum value of pension entitlements, which many jurisdictions will allow to be used early for 2008 year-end solvency valuations, will only partially mitigate the losses, reducing liabilities generally by only a few percent.”
“Strangely enough, for many plans, corporate financial statements at year-end 2008 will show gains in pension plan funded status over the year, despite the investment losses. As credit spreads have widened, rising corporate bond yields will result in lower disclosed pension obligations at year-end,” said Forestell.
The <i>Mercer Pension Health Index</i> shows the ratio of assets to liabilities for a model pension plan. The ratio has been arbitrarily set to 100 per cent at the beginning of the period. The index assumes contributions equal to current service cost and no plan improvements. Results will vary by pension plan.