Surpluses buy cashflow relief but leave plans exposed to shocks and new mortality data
Canadian defined benefit (DB) pension plans stayed strongly funded through a volatile first quarter, even as more employers used plan surpluses to take “contribution holidays,” Mercer says.
Mercer’s Pension Health Pulse (MPHP), which tracks the median solvency ratio of DB plans in its Canadian pension database, put the median solvency ratio at 123 percent as of March 31.
At quarter-end, 59 percent of plans had a solvency ratio of at least 120 percent, 87 percent were at or above 100 percent, and 13 percent were in deficit.
Samantha Allen, a Mercer principal in Toronto, said surpluses are offering sponsors room to manage cash while still protecting members.
She said pension plan surpluses may give employers “a certain level of cashflow stability” as they navigate “a very challenging economic landscape.”
She also noted that “solvency financial positions remain elevated, providing pension plan members protection against potential turbulences.”
Mercer’s new data show employers increasingly using surpluses to take contribution holidays.
The firm defines a contribution holiday as a temporary pause or reduction in employer contributions that is typically allowed, and sometimes required, when surpluses sit above legislative thresholds.
Mercer expects the contribution holiday trend to continue in 2026, given the level of surpluses.
It also warns sponsors to exercise caution when setting surplus strategies, noting that geopolitical risks persist and that some plans’ financial health “has deteriorated quickly during past crises.”
The firm points to new mortality research released in March by the Canadian Institute of Actuaries, which may lead to future adjustments in pension liabilities.
Plans with surpluses will be better positioned if that research eventually results in higher liabilities.
Mercer describes the solvency financial position of Canadian DB plans in the first quarter of 2026 as “relatively stable.”
Slight increases in interest rates produced a small decline in the value of pension promises, or actuarial liabilities, while investment returns were slightly lower.
Overall, the decrease in liabilities was offset by a similar decrease in assets, leaving a neutral position.
Recent valuation results in Mercer’s database, together with the use of contribution holidays, led to a lower median solvency ratio this quarter.
Market fluctuations, compared with the end of 2025, did not drive that decline.
During the quarter, the Bank of Canada held its overnight rate steady after four decreases of 0.25 percent in 2025, a stance Mercer calls prudent in a difficult-to-predict environment.
While the Canadian economy shows signs of slowing, Mercer notes that geopolitical threats may push short-term inflation higher through rising oil prices, with a compounding effect on global economies.
The firm says sponsors should continue to monitor economic volatility in 2026.
Pension plans with significant surpluses may be better placed to handle economic challenges, and current surplus levels give plan sponsors scope to reassess plan design and investment strategies to mitigate risk and keep plans resilient in different economic scenarios.
The Mercer Pension Health Pulse tracks the median ratio of solvency assets to solvency liabilities for DB plans in the Mercer pension database.
The database includes 435 plans across Canada, spanning public, private and not-for-profit sectors.
Mercer projects each plan’s financial position from its most recent funding valuation, allowing for benefit accruals, benefit payments, interest, interest rate changes, contributions and investment returns based on each plan’s target asset mix.
