Pension plans at healthiest level in 12 years

4 January 2014FinancePolitics

The Canadian Press, as published by CBC News:

The health of Canadian pension plans improved to their best level in more than a decade in the fourth quarter of 2013 due to strong stock markets and rising long-term interest rates, consulting firm Mercer said Thursday.

The Mercer pension health index, which tracks the funded status of a hypothetical defined benefit pension plan, stood at 106 per cent at Dec. 31 — its highest level since June 2001.

The index started the year at 82 per cent and stood at 98 per cent at Sept. 30.

“It’s hard to overstate how good 2013 was for most defined benefit pension plans,” said Manuel Monteiro, a partner in Mercer’s financial strategy group.

Although the Mercer pension health index is more applicable to corporate pension plans – they discount their liabilities using long-term bond yields while public pensions like LAPP discount liabilities using an assumed long-term investment return – this is further evidence that defined-benefit pension plans are in fact sustainable.

The Alberta government plans to introduce changes to public sector pensions in the province this spring but their timing couldn’t be worse from a public relations viewpoint. Just as they attempt to force through legislation that isn’t backed by unions or labour groups, 2013 results will make their actions look unnecessary and myopic.