Health of defined benefit pension plans hurt by falling interest rates

TORONTO – Aon Hewitt says the health of Canadian defined benefit pension plans has continued to decline this year due to falling long-term interest rates that have driven up plan liabilities.

The consulting firm says the median solvency funded ratio of 449 plans included in its survey was 89 per cent at March 30, down two percentage points from the end of 2014 and six percentage points lower than a year ago.

The solvency funded ratio compares total assets to total pension liabilities in the event of plan termination.

Aon Hewitt said 18 per cent of the of surveyed plans were more than fully funded at the end of the first quarter.

Interest rates fell in the first quarter as 10-year bond yields dropped by about 40 basis points.

The drop was partly offset by gains made by U.S. and global stocks and to a lesser extent Canadian equities.