As 2024 drew to a close, pension plans faced a mixed financial landscape shaped by investment performance, market dynamics, and evolving risk management priorities. Market performance during the fourth quarter of 2024 resulted in an improvement to the funded status of a typical defined benefit (DB) pension plan on both solvency and accounting bases, signaling key trends and considerations for 2025.
In December, the funded status of a typical pension plan experienced slight declines on both solvency and accounting bases, driven mainly by poor investment performance. A representative pension plan portfolio posted an investment return of -1.3 per cent for the month.
Despite December’s challenges, 2024 marked another good year for the financial health of DB pension plans. Both the Solvency Index and the Accounting (Balance Sheet) Index ended the year above 110, signifying a four-year period of notable improvement in funded positions. This upward trend reflects financial market performance during this period that benefited pension plans and highlights their strong financial footing heading into 2025.
Looking ahead, risk management will likely take center stage for pension plan administrators in 2025. The release of the Canadian Association of Pension Supervisory Authorities (CAPSA) Guideline for Risk Management for Plan Administrators in September 2024 emphasizes the importance of proactively addressing risks that could impact plan sustainability.
Gavin Benjamin, a Partner in TELUS Health’s Consulting team, highlights the dual-edged nature of AI as an example of both an opportunity and emerging risk for pension plans. While AI can enhance the efficiency, accuracy, and quality of plan administration, it also introduces new risks. These include potential inaccuracies in AI-generated advice and heightened privacy concerns. “It is important for pension plan administrators to implement safeguards to address AI risk, ensuring human intervention remains an integral part of the process whenever AI tools are used,” notes Benjamin.
As pension plan administrators navigate the year ahead, the lessons of 2024 offer valuable insights. By leveraging their improved funded positions and focusing on robust risk management practices, they can strengthen their resilience against financial and operational uncertainties. The evolving role of technology, particularly AI, will require vigilance and adaptability to harness its benefits while mitigating associated risks.
With a strong foundation built over the past four years, 2025 presents an opportunity for pension plans to not only safeguard their progress but also embrace innovation to enhance their long-term effectiveness and sustainability.
Click here to read the December report.