North American Pensions See Marginal Funding Improvement in Q310

October 21, 2010 ( - Pension funded status for U.S. plans showed a marginal improvement in the third quarter, increasing from 80% to 82%, according to a new analysis from Aon Hewitt.

An Aon Hewitt news release said strong equity markets—up 5% to 10% for the year—helped pension plans regain the losses they experienced in the second quarter. However, the corporate bond rates used for measuring pension liabilities plummeted to less than 5% in August—the lowest in over a decade.   

Even after a slight uptick in September, these rates fell between 0.3% to 0.5% from prior quarter levels. As a result, pension liabilities increased by 4% to 6%, negating much of the benefit from strong equity performance.  

In Canada, accounting deficits for companies in the S&P/TSX remained relatively unchanged during the third quarter of 2010. Strong asset returns, led by domestic equities, contributed to total assets increasing by more than 7% during the quarter. However, according to the news release, this gain was offset by a significant decrease in corporate bond yields over the quarter, resulting in a 6% increase in liabilities.   

The net impact was that average funded ratios for Canadian pension plans only increased incrementally, from 87% at the start of the quarter to 88% at the quarter’s end.  

Aon Hewitt monitors and analyzes daily pension funding levels of U.S., U.K., Continental European, and Canadian companies in the S&P 500, FTSE 350, DJ Euro Stoxx 50 and TSX, respectively, through its Pension Risk Tracker tool.