Pension Plans in Canada – Funding decline in 2015

Canadian pension plans saw their funding decline in 2015 and are facing a rocky outlook for 2016 that could make it difficult to recoup their losses.

A review of 449 Canadian pension funds by consulting firm Aon Hewitt shows the average pension plan’s solvency position fell to 87.6 per cent as of Dec. 16, a decline of three percentage points from 90.6 per cent at the end of 2014.

The funding deterioration came as interest rates dropped and Canada’s S&P/TSX composite index fell by 7.4 per cent for the year, as of Dec. 16. Pension plans also took a hit from the adoption of new Canadian mortality tables that provide for longer life expectancies for Canadians.

Only 11.8 per cent of pension funds in Aon Hewitt’s client database had a funding surplus as of Dec. 16, a decline from 13.6 per cent at the end of the third quarter and 18.5 per cent at the end of 2014.

William da Silva, Aon Hewitt’s national retirement practice leader, said companies could be facing growing obligations to contribute cash to their pension plans to cover funding shortfalls.

“In terms of financial health, 2015 was not a great year for Canadian pension plans,” he said. “Next year could well be a pivot point for many plan sponsors. Besides having to manage market volatility, they may need to evaluate their funding strategies, since lower-than-expected solvency ratios may lead to higher contributions.”

Chosen excerpts by Job Market Monitor. Read the whole story at  Canadian pension plans saw declines this year, face rocky road in 2016 – The Globe and Mail