Canadian Defined Benefit Pension Plans' Solvency improves in the first quarter of 2013, according to Aon Hewitt

Canadian Defined Benefit Pension Plans' Solvency improves in the first quarter 
of 2013, according to Aon Hewitt 
TORONTO, April 2, 2013 /CNW/ - Defined benefit (DB) pension plan sponsors in 
Canada have seen a marked increase in their solvency funding in the first 
quarter of 2013 thanks to a combination of company contributions, a strong 
equity market and a slight increase in interest rates, according to Aon 
Hewitt, theglobal human resource solutions business of Aon plc (NYSE:AON). 
The median pension solvency fundedratio - or the ratio ofthe market value 
of plan assets to liabilities — is approximately five percentage points 
higher at March 31, 2013 than at the start of the year. 
According to Aon Hewitt, all of the major factors influencing pension plan 
solvency position were favourable this quarter. Interest rates, while 
remaining close to record low levels, reversed their seemingly constant 
decline from the last few years. This pushed down the value of liabilities of 
pension plans, improving funding. The discount rate used to calculate the 
liabilities to be settled by annuity purchases in case of a plan termination 
went up from 2.96 percent at the beginning of the year to 3.04 percent close 
to the end ofthequarter. 
Equities performed well, with US Equities leading the pack at 12.86 percent 
for the quarter, followed byInternational Equities (7.27 percent), Canadian 
Equities (3.34 percent) and Emerging Market Equities (0.38percent). Pension 
plans invested in alternative asset classes such as Global Real Estate and 
Infrastructure were rewarded with returns of 8.42 percent and 9.27 percent 
respectively. Finally, most plan sponsors had to contribute towards their 
deficits due to minimum solvency funding requirements. 
The combination of all these factors led to a rise in Aon Hewitt's median 
solvency funded ratio of a large sample ofpension plans from 69 percent at 
the end of 2012 to 74 percent at March 31, 2013. About97percent 
ofpension plans in that sample had a solvency deficiency as at March 31, 
2013. The solvency funded ratio measures the financial health of a defined 
benefit pension plan by comparing the amount ofassets to total pension 
liabilities in the event of a plan termination. 
"There are three main ways that plan sponsors will see themselves out of this 
solvency conundrum," said IanStruthers, partner, Investment Consulting 
Practice, Aon Hewitt Canada. "Through an increase in interest rates, favorable 
equity and alternative markets returns, and/or through higher employer 
contributions. We saw all three last quarter." 
The graph above depicts the movement of assets, liabilities and funded ratios 
for this median pension plan since January 1, 2010. 
We can see that assets have only increased by 26 percent over the three-year 
and three month period since December 31, 2009 whileliabilities, driven by a 
continuous drop in long-term interest rates, have increased by46 percent 
over thesameperiod. 
Impact of de-risking
As well as the typical plan, Aon Hewitt has also tracked the performance of a 
plan that has employed a few simple de-risking strategies since January 1, 
2011. Namely: 


    --  Increased investment in bonds from 40 percent to 60 percent of
        the portfolio
    --  Investment in long bonds instead of universe bonds to better
        match liabilities.

The de-risked plan would have experienced an 82 percent solvency ratio as at 
March 31, 2013 as opposed to74 percent for the median plan.

"There are many ways to de-risk a portfolio and it is especially important to 
have a strategy when there is uncertainty around market direction," concluded 
Struthers.

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About AonHewitt
AonHewitt is the global leader in human resources solutions.The company 
partners with organizations tosolve their most complex benefits, talent and 
related financial challenges, and improve business performance.AonHewitt 
designs, implements, communicates, and administers a wide range of human 
capital, retirement, investment management, health care, compensation and 
talent management strategies.Withmorethan 29,000 professionals in 90 
countries, AonHewitt makes the world a better place towork forclients 
and their employees. Formore information on AonHewitt, please visit 
www.aonhewitt.com.

About Aon Aon plc NYSE:AON is the leading global provider of risk management, 
insurance and reinsurance brokerage, and human resources solutions and 
outsourcing services. Through its more than 62,000 colleagues worldwide, Aon 
unites to empower results for clients in over 120 countries via innovative and 
effective risk and people solutions and through industry-leading global 
resources and technical expertise. Aonhas been named repeatedly as the 
world's best broker, best insurance intermediary, reinsurance intermediary, 
captives manager and best employee benefits consulting firm by multiple 
industry sources. Visitwww.aon.com formoreinformation on Aon and 
www.aon.com/manchesterunited to learn about Aon'sglobal partnership 
andshirt sponsorship with Manchester United.

Media Contact: Alexandre Daudelin │ +1.514.982.4910 
│alexandre.daudelin@aonhewitt.com

Image with caption: "Aon Hewitt Survey of Median Solvency Ratio 2010-2013 (CNW 
Group/AON Hewitt)". Image available at:  
http://photos.newswire.ca/images/download/20130402_C9852_PHOTO_EN_25015.jpg

SOURCE: AON Hewitt

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CO: AON Hewitt
ST: Ontario
NI: ECOSURV FIN 

-0- Apr/02/2013 15:20 GMT