After 18 months of uninterrupted improvement, the solvency health of Canadian pension plans dipped slightly in the first quarter of 2014, according to Mercer.
The slight decline was caused by a drop in long-term interest rates, partially offset by strong Canadian equity returns and the positive effect of a weaker Canadian dollar on foreign asset returns.
The index stood at 104% on March 31, down from 106% at the start of 2014. It’s still up significantly from 82% at the beginning of 2013.
“The funded status of pension plans remains at very healthy levels, particularly when we look back over the last decade,” says Manuel Monteiro, a partner in Mercer’s financial strategy group.
With many plans at or near a fully funded status, he says there’s been a sharp increase in the number of plan sponsors that are taking the opportunity to revisit their broader pension risk management strategy.
Monteiro adds that “2014 is likely to be a record-breaking year for annuity transactions. But since the Canadian annuity market is a tiny fraction of the defined benefit obligations plan sponsors are looking to de-risk, we expect that much of the activity will involve changes in asset mix to better match liabilities and diversify risk exposure.”
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