Balanced pooled funds posted a median return of -4.6% in 2002, their worst since 1974, according to Mercer Investment Consulting’s Survey of Pooled Pension Funds.

“This is the second year in a row the median balanced fund return has been well below typical long-term expectations, which has had a devastating impact on the financial health of pension plans,” said Marcel Larochelle, practice leader for Mercer Investment Consulting in Canada.

Mercer’s Canadian Pension Health Index shows the financial position of a typical pension plan to be down 15% from the beginning of 2002 and down 21% from the beginning of 2001.

The deterioration in the Pension Health Index is due to equity market declines and the increase in the cost of providing pensions. For example, in 2002, the median return from Canadian equity managers was -9.8%. While this is disappointing in absolute terms, it was ahead of the S&P/TSX Composite index by 2.6%.

Over the same period, the median US equity return was -22.9%, only 0.2% ahead of the S&P 500 index return, and the median international equity return was -16.7%, same as the return of the MSCI EAFE Index. In stark contrast, the median bond return was +8.7%, benefiting from a decline in interest rates over the year.

“As a result of the recent market declines,” said Larochelle, “sponsoring companies will need to develop a strategy to bring the pension plan back to a healthy balance. Clearly this will now be done with a better appreciation of the impact that unfavourable markets can have on their financial situation.”

Information on the Mercer universe statistics and on the Mercer Pension Health Index is available quarterly at www.mercerIC.com