Mercer data shows stable funding levels as contribution holidays gain traction in 2026
Canadian defined benefit pension plans remained on solid financial footing through the first quarter of 2026, even as global markets were shaken by geopolitical uncertainty, according to new findings from Mercer.
The firm reported that pension funding levels stayed resilient, with its Mercer Pension Health Pulse (MPHP) indicating a median solvency ratio of 123% as of March 31, 2026. The solvency ratio is a key gauge of a plan’s ability to meet its obligations.
Despite that strength, the quarter saw a modest dip in solvency levels compared with the end of 2025. Mercer attributed this decline not to market swings, but largely to plan sponsors making use of contribution holidays—temporary reductions or pauses in employer payments made possible when pension plans hold surplus assets above regulatory thresholds.
This trend is gaining momentum, as organizations look to ease cashflow pressures in a challenging economic environment.
During the quarter, pension plan fundamentals remained relatively balanced. A slight uptick in interest rates reduced the value of pension liabilities, while investment returns also edged lower. These offsetting factors left overall funding positions largely unchanged.
By the end of March, 59% of plans reported solvency ratios of at least 120%, while 87% were fully funded or better. However, 13% remained in deficit territory.
“As companies navigate a very challenging economic landscape, pension plan surpluses may allow employers a certain level of cashflow stability. At the same time, solvency financial positions remain elevated, providing pension plan members protection against potential turbulences,” said Samantha Allen, a Mercer Principal in Toronto.
Looking ahead, Mercer expects contribution holidays to remain a common strategy throughout 2026, given the level of surplus assets currently available. However, the firm cautioned that plan sponsors should remain prudent, noting that pension health can deteriorate quickly during periods of crisis.
Emerging risks could also reshape the outlook. Newly released mortality research in March may lead to revisions in how liabilities are calculated, potentially increasing obligations for some plans. Those with stronger surplus positions would be better equipped to absorb such changes.
Monetary policy also remains a factor. The Bank of Canada kept its overnight rate unchanged during the quarter, following four rate cuts of 0.25% in 2025. While Canada’s economy is showing signs of slowing, geopolitical tensions—particularly those influencing oil prices—could push inflation higher in the near term.
Against this backdrop, Mercer advises plan sponsors to stay vigilant. Elevated surplus levels may offer flexibility, including opportunities to revisit plan design or adjust investment strategies to better manage risk.
Ultimately, while funding positions remain strong, the evolving economic landscape means pension sponsors will need to actively reassess their strategies to maintain resilience in the months ahead.
