Canadian DB plans stay 123% funded but sponsors weigh how far to lean on surpluses
Canadian defined benefit (DB) pension plans hold a robust median solvency ratio of 123 percent, yet more employers are drawing on those surpluses for contribution holidays that could raise long‑term risks in a volatile economy.
Mercer’s Pension Health Pulse measures the median solvency ratio of DB pension plans in its database and reports that Canadian plans “continued to maintain a strong solvency position, despite a volatile quarter for capital markets due to geopolitical tensions” as of March 31.
The firm says 59 percent of plans had a solvency ratio of 120 percent or more, 87 percent were at 100 percent or more, and 13 percent were in a deficit position.
At the same time, Mercer notes that employers are increasingly leveraging plan surpluses to take contribution holidays, defined as a temporary pause or reduction in employer contributions that is typically allowed, and sometimes required, when surpluses exceed legislative thresholds.
Recent valuation results in its database, together with the use of contribution holidays, resulted in a lower median solvency ratio this quarter, while market fluctuations did not drive the decrease compared to the end of 2025.
In the first quarter of 2026, Mercer reports that the solvency financial position of Canadian DB plans was relatively stable.
Interest rates increased slightly, which led to a small decrease in the value of pension promises, or actuarial liabilities, while returns on investment were slightly lower.
Overall, Mercer says the decrease in liabilities was offset by a similar decrease in assets, resulting in a neutral position.
Samantha Allen, a Mercer principal based in Toronto, said that “as companies navigate a very challenging economic landscape,” pension plan surpluses can support cashflow stability for employers. She added that elevated solvency positions help protect pension plan members from potential turbulence.
Mercer recommends that employers continue to exercise caution with pension surpluses, warning that geopolitical risks to the economy remain and may even increase, and that the financial health of some pension plans has deteriorated quickly during past crises.
Looking ahead, Mercer expects the contribution holiday trend to continue in 2026, given available surpluses.
The firm says employers should remain careful when setting surplus strategies, particularly as new mortality research released in March may lead to future adjustments to pension liabilities.
Mercer notes that plans with surplus will be better positioned if this research eventually results in an increase in liabilities.
During the quarter, the Bank of Canada held its overnight rate steady after four decreases of 0.25 percent in 2025, describing this as a prudent approach in a hard‑to‑predict environment.
While Mercer observes signs that the Canadian economy is slowing, it cautions that geopolitical threats may drive short‑term inflation through rising oil prices, with a compounding effect on global economies.
As a result, plan sponsors should continue to monitor economic volatility in 2026.
According to the firm, pension plans with significant surpluses may be better positioned to handle economic challenges, and current surplus levels allow plan sponsors to reassess plan designs and investment strategies to mitigate risk and keep plans resilient across a range of potential economic environments.
