TORONTO - The financial strength of Canada's defined benefit pension plans improved over the first quarter of 2019, two of the country's largest pension advisory firms said Tuesday in separate reports.

Aon and Mercer both said defined benefit investment portfolios were improved because a rally on domestic and foreign stock markets increased the value of their assets. That was partly offset by an increase in plan liabilities.

Aon senior partner William da Silva said overall conditions have improved dramatically over the past three to five years, and many plans are fully funded or close to fully funded.

"I think beneficiaries can feel much more comfortable about having financial assets backing the promises that were made to them in the DB plans," da Silva said.

The Aon Median Solvency Ratio rose to 98.5 per cent as of March 31, The ratio indicates that half of the plans had at least enough assets to cover 98.5 per cent of their liabilities, up from 95.3 per cent as of Jan. 1.

From the perspective of plan sponsors, da Silva said, the improved funded status will allow them to move assets from unpredictable stocks markets to the safety of interest-bearing assets such as bonds.

"Hopefully, most organizations have started to de-risk (by moving out of stocks) so that if there is a downturn, (they're) not going to be whacked as bad as in the past," da Silva said.

Andrew Whale, of Mercer Canada's Financial Strategy Group, said plan sponsors are concerned about the volatility of markets because of the impact on both the pension plans and the financial statements of the overall business.

"As a beneficiary looking at the health of a plan, it's always important to view not only the health of the pension plan but the health of the plan sponsor, the former employer as well . . . so they can afford to withstand the volatility."

Defined pension plans can sometimes put significant financial stress on employers, since they are legally obligated to provide an agreed-upon level of benefits for retirees even when investment markets do poorly.

Mercer estimates nearly half of the defined benefit plans in its universe are fully funded and the firm is encouraging such clients to take investment risks off the table, Whale said in an interview.

The Mercer Pension Health Index's stood at 106 per cent at March 31, meaning that a hypothetical plan that's used as a benchmark would have enough assets to cover 106 per cent of liabilities. That's up from 102 per cent in early January.

News from © The Canadian Press, 2019