The average funded position of defined benefit pension plans in Ontario was 121 per cent in the third quarter of 2024, down just two per cent from the previous quarter, according to a new report by the Financial Services Regulatory Authority of Ontario.
It attributed this decrease to a drop in discount rates from the previous quarter, which resulted in an increase in plan liabilities that largely offset the impact of asset gains.
Read: Ontario DB pension plans’ average solvency ratio increases to 123% in Q2 2024: FSRA
As at Sept. 30, 2024, the percentage of pension plans projected to be fully funded on a solvency basis was 90 per cent, unchanged from the second quarter. The percentage of plans with a solvency ratio between 85 per cent and 100 per cent also remained unchanged at eight per cent, with just two per cent of plans reporting a solvency ratio below 85 per cent, also unchanged from June 30, 2024.
Overall, investment returns were positive across all asset classes, with an average net return of 6.3 per cent. The average gross and net returns were 6.6 per cent and 6.3 per cent, respectively. According to the report, the recent drop in long-term interest rates drove up liabilities, but the impact was offset by solid investment returns, particularly within equity markets. However, it cautioned as inflation continues to trend downwards, further interest rate declines could negatively affect funding levels.
“This serves as an important reminder for plan sponsors and administrators to stay alert, future-focused and strategic in managing risks as market conditions evolve,” said Lester Wong, the FSRA’s chief actuary of pensions, in a press release.
Read: FSRA outlines risk model to avoid pension plan investment turmoil, risks