The recent decline in the stock market has brought down the funded position of pension plans, but plans are still in better shape now than they were at the beginning of the year.
The health of pension plans has been improving steadily over the past few years and according to the Mercer Pension Health Index—which shows the ratio of assets to liabilities for a model pension plan—the funded position was close to 90% at the end of June, the highest point in four years.
However, the index dropped to 85% on Friday, but was still higher than it was at the start of 2007(84%).
Paul Forestell, worldwide partner and leader of the Canadian retirement professional group at Mercer Human Resource Consulting, says the reason why the funded position has improved—despite the 12% decline in the Toronto Stock Exchange over the past month—is because bond yields have come up and “pension plans on the whole are better funded than they were at the end of the year even after that downturn since the middle of July.”
He expects plan sponsors will become a little more focused and pay a little more attention to the risk and be more diligent about the investments in their plan and how they match their liabilities.
“The main thing for plan sponsors is that they have made a well informed conscious decision about their asset mix and that they understand the risks that is there and that they are invested for the long term, that they’re not having to pay out all their assets tomorrow,” explains Forestell, “so therefore they should go back, look at why they’ve invested the way they did and try to stay the course.”
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