Discount Rate Decrease Leads to Slight Funding Decline of Segal Group’s Model Multi-Employer Pension Plan in Second Quarter

TORONTO VIA NEW YORK (8/4/17) —  During the second quarter of 2017, the funded status of The Segal Group’s model multi-employer pension plan (MEPP) decreased by 4 percentage points, to 97 percent.

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“The change in funding status reflects a gain on investments that was offset by movements in interest rates during the quarter,” said Cameron McNeill, Segal’s Canadian Business Leader. Mr. McNeill added that the benchmark discount rate would vary based on the asset mix of a plan. The Segal Group model plan’s allocation is 55 percent equity and 45 percent bonds. “A plan with a higher allocation in equity would have a higher benchmark discount rate and vice versa,” he said.

Segal also reported data from Statistics Canada on the number of hours worked in specific industries as a way to measure the long-term view of plan viability and ability to cover fixed costs. A reduction in the hours worked may alter the ongoing viability of a plan since it will affect the plan’s ability to cover fixed costs. Of the six industries examined, only utilities showed a decline.

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To speak with an expert about this issue of Direction and what our model MEPP’s funded status might suggest for other MEPPs, please contact Todd Kohlhepp.