In the third quarter of 2023, Canadian defined benefit (DB) pension plans reported a negative return of -2.6%. This downturn was primarily influenced by the rise in bond yields, which negatively impacted fixed income returns for these pension fund portfolios. However, there is a contrasting effect of these rising yields, as this situation may have simultaneously strengthened the funded positions of many Canadian plan sponsors. As bond yields increase, the present value of liabilities decreases, which could enhance the funding ratios for pension plans. Thus, while the reported returns are negative, the overall financial health of some pension plans may not be as adversely affected as the returns suggest. This underscores the complexity of how rising yields can impact various elements within pension fund management.
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