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More than one-third of Canadian DB plans were fully funded at the end of the first quarter.
For the more than 275 Aon Hewitt-administered pension plans from the public, semi-public and private sectors that participated in the survey, the median solvency funded ratio stood at 95.4% at March 27, 2014.
That represents an improvement of two percentage point increase over the previous quarter ended Dec. 31, 2013, and a significant 21-point increase from the same quarter in 2013.
Approximately 36% of the surveyed plans were more than fully funded at the end of the quarter, compared with 26% in the previous quarter and 3% in the first quarter of last year.
“What we have seen in Q1 is a continued improvement in financial health of Canadian pension plans in line with what we saw in 2013,” says William da Silva, senior partner, retirement practice, with Aon Hewitt. “Clearly, that’s good news for plan sponsors and members in the short term. But volatility in the capital markets still exists.”
The primary driver of solvency improvement in the first quarter was the strong performance of North American equity markets, with Canadian equities returning 4.9% and U.S. equities returning 4.6%. As well, alternative asset classes generated healthy returns, as the UBS Global Infrastructure & Utilities 50-50 Index gained more than 10.1% and global real estate returning 6.6%.
Those returns helped offset declining yields in benchmark bonds and continuing weakness in emerging markets (which earned 1.5% in the first quarter). Notably, the declining Canadian dollar also contributed significantly to better financial returns for the plans by increasing the domestic market value of U.S. assets.
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