How did corporate pension plans do in 2019?

Do you have a corporate pension plan in Canada, then you may be interested in a report Liabilities mostly offset high returns around the globe, posted in Pension and Investments on January 20th? This report goes into great detail about many countries so if you are not Canadian, you may want to go to the link and read up on your country. 

A pension plan with a traditional 60/40 mix — composed of 20% in Canadian equities, 40% in global equities and 40% in "Canadian universe" bonds, rebalanced monthly — would have enjoyed a 15.7% return, but the lowest long-term bonds yields in more than 60 years offset much of those gains by boosting pension liabilities as well, said Andrew Kitchen, a Toronto-based managing director, institutional Canada, for Russell Investments Canada.

For the year, the solvency ratio of Canadian defined benefit pension plans only improved to 94% from 92% the year before, he said.

All-time lows for Canadian bond yields in 2019 led to all-time highs for corporate defined benefit pension obligations, with a 15% jump in liabilities over the past year alone, said Andrew Whale, a Toronto-based principal in Mercer Canada's financial strategy group in a review of corporate DB plans over the past year.

The median solvency ratio for Mercer's corporate pension clients in Canada rose to 98% from 93%. By Mercer's estimates, a typical balanced pension fund in 2019 would have delivered a 17.4% investment return.

Consultants at both Russell and Mercer said the boost in pension liabilities on the balance sheets of companies with DB plans has left corporate executives focusing more on options such as pension buyouts or pension risk transfers. The cost premium of settling DB obligations by purchasing an annuity over keeping that DB obligations on the balance sheet have shrunk and "we have seen their appetite for annuities increase tremendously," said Mercer's Mr. Whale.

Russell's Mr. Kitchen said risk transfers won't be the appropriate solution for all plan sponsors, with those seeking other ways to manage DB asset volatility now boosting allocations to alternative assets and private market exposures.