A sign board in Toronto shows the closing number for the TSX on Thursday, October 29, 2020. A report by Mercer Canada says a rally on the stock market in the fourth quarter helped boost the strength of Canadian defined benefit pension plans to end the year. THE CANADIAN PRESS/Frank Gunn

A sign board in Toronto shows the closing number for the TSX on Thursday, October 29, 2020. A report by Mercer Canada says a rally on the stock market in the fourth quarter helped boost the strength of Canadian defined benefit pension plans to end the year. THE CANADIAN PRESS/Frank Gunn

Mercer Canada report says rally in stocks helped strengthen pension plans to end year

A rally on the stock market in the fourth quarter helped boost the strength of Canadian defined benefit pension plans to end the year, a report by Mercer Canada said Monday.

The consulting firm said its pension health index, which represents the solvency ratio of a hypothetical defined benefit pension plan, rose to 114 per cent at the end of December from 107 per cent at the end of September.

In the fourth quarter, funded positions of defined benefit plans continued to recoup the losses incurred in the first quarter — helped by the rally in equity markets, aided by higher bond yields and changes to the Canadian Institute of Actuaries’ commuted value standards, Mercer said.

Ben Ukonga, principal in Mercer’s financial strategy group, said the funded positions of defined benefit plans endured a gut-wrenching decline in the first quarter, but most are now back at or close to their pre-pandemic level.

The median solvency ratio of the pension plans of Mercer clients was at 96 per cent at Dec. 31, up from 93 per cent on Sept. 30, but down from 98 per cent at the beginning of the year.

A solvency ratio of 100 or more indicates a plan is fully funded while anything less indicates there would be some shortfall if a plan had to be wound up.

A separate report by Aon plc on Monday also concluded that financial health improved in 2020 for Canadian defined benefit pension plans.

That report said pension assets had a 9.9 per cent return over 2020 and ended the fourth quarter up 3.9 per cent. Though pension plans ended the year in a similar — or slightly better — spot than a year ago, 2020 was a “wild ride,” said Nathan LaPierre, a partner of retirement solutions at Aon, in the report.

“Equity markets performed strongly in 2020 and helped funded ratios improve,” Erwan Pirou, Aon’s Canada chief investment officer of retirement solutions, said in a statement.

“However, some pension plans did not realize the full benefit of the equity market rally, as some active equity managers underperformed their benchmark.”

As long-term Government of Canada bond yields dropped compared with the end of last year, Aon found the increase in pension liability caused by decreasing interest rates offset the positive effect of asset returns on the funded status of the plan.

Given a majority of the plans in Canada are still exposed to interest rate risk, LaPierre said that those with ongoing defined benefit plans “will need to grapple with lower return expectations stemming from ultra-low interest rates.”

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

People lineup at a hotel for the homeless before the 8 p.m. COVID-19 curfew on Jan. 11, 2021, in Montreal. THE CANADIAN PRESS/Ryan Remiorz
Legault nixes call for COVID-19 curfew exemption, saying it could used to avoid fines

Legault nixes call for COVID-19 curfew exemption, saying it could used to avoid fines

The body of 25-year-old Kyler Corriveau was discovered near Red Deer on Sunday. He was missing since Dec. 15. Police are investigating his death as a homicide. (Contrinuted photo).
RCMP are investigating the death of missing Red Deer man as a homicide

The body of Kyler Corriveau was discovered on Sunday

Alberta’s chief medical officer of health Dr. Deena Hinshaw reported 456 new cases of COVID-19 over Tuesday afternoon. (photography by Chris Schwarz/Government of Alberta)
Five new COVID-19 deaths in Central zone, two in Red Deer

Province reports 456 new cases of COVID-19

Community Futures Central Alberta, in partnership with the Central Alberta Regional Innovation Network (CARIN), is behind the SMARTstart initiative for budding entrepreneurs.
New program aimed at helping entrepreneurs succeed

Program offers mentorship, business advice and networking opportunities

A Red Deer man, who has been declared a dangerous offender, lost his appeal of an aggravated assault conviction from 2017. Advocate file photo
Red Deer man who chomped on remand centre inmate’s ear loses aggravated assault appeal

Inmate lost part of his ear in attack at Red Deer Remand Centre in August 2017

Justin Kripps of Summerland and his team have competed in Olympic action and World Cup competitions in bobsleigh. (Jason Ransom-Canadian Olympic Comittee).
QUIZ: Are you ready for some winter sports?

It’s cold outside, but there are plenty of recreation opportunities in the winter months

FILE - John Mulaney arrives at night one of the Creative Arts Emmy Awards on Sept. 14, 2019, in Los Angeles. A file obtained by The Associated Press shows the U.S. Secret Service investigated John Mulaney, but found no wrongdoing in a joke the comedian made on “Saturday Night Live” in February 2020. (Photo by Richard Shotwell/Invision/AP, File)
File details investigation into John Mulaney ‘SNL’ monologue

File details investigation into John Mulaney ‘SNL’ monologue

FILE - In this Wednesday, Jan. 18, 2017, file photo, Tom Hanks arrives at the People's Choice Awards at the Microsoft Theater in Los Angeles. Hanks will host a 90-minute primetime TV special celebrating the inauguration of Joe Biden as president of the United States. (Photo by Jordan Strauss/Invision/AP, File)
From Gaga to Garth, Miranda to Moreno: Celebs join inaugural

Like so much this past year, the inaugural celebration will be like… Continue reading

A Honduran migrant poses for a photo at a road block manned by Guatemalan soldiers and police, on the highway in Vado Hondo, Guatemala, Monday, Jan. 18, 2021. Some migrants threw rocks while authorities launched tear gas and pushed the migrants with their riot shields back down the highway. (AP Photo/Sandra Sebastian)
Large migrant caravan dissolves in Guatemala

Large migrant caravan dissolves in Guatemala

FILE - In this May 2, 2020, file photo, Erika Bermudez becomes emotional as she leans over the grave of her mother, Eudiana Smith, at Bayview Cemetery in Jersey City, N.J., Bermudez was not allowed to approach the gravesite until cemetery workers had buried her mother, who died of COVID-19. Other members of the family and friends stayed in their cars. (AP Photo/Seth Wenig, File)
‘Shameful’: US virus deaths top 400K as Trump leaves office

‘Shameful’: US virus deaths top 400K as Trump leaves office

Riot shields are stacked at the ready as National Guard troops reinforce the security zone on Capitol Hill in Washington, Tuesday, Jan. 19, 2021, before President-elect Joe Biden is sworn in as the 46th president on Wednesday. (AP Photo/J. Scott Applewhite)
2 Guard members made extremist statements about inauguration

2 Guard members made extremist statements about inauguration

In this Jan. 6, 2021, photo, Senate Majority Leader Mitch McConnell of Ky., walks from the Senate floor to his office on Capitol Hill in Washington. Now that the House has impeached President Donald Trump for the second time, House Speaker Nancy Pelosi must figure out the best strategy for arguing the case before the Senate. Senate rules say the trial must start soon after the chamber receives the article of impeachment, which cites “incitement of insurrection” after an angry mob of Trump’s supporters invaded the Capitol last week. (AP Photo/Manuel Balce Ceneta)
McConnell: Trump ‘provoked’ Capitol siege, mob was fed lies

McConnell: Trump ‘provoked’ Capitol siege, mob was fed lies

Biden marks nation’s Covid grief before inauguration pomp

Biden marks nation’s Covid grief before inauguration pomp

An empty Peel and Sainte-Catherine street is shown in Montreal, Saturday, Jan. 9, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Poll finds strong support for COVID-19 curfews despite doubts about effectiveness

Poll finds strong support for COVID-19 curfews despite doubts about effectiveness

Most Read