North American Pensions See Marginal Funding Improvement in Q310

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.