Morneau Shepell has released a report on pooled pension plan manager performance during the fourth quarter of 2014. While low interest rates have helped to fuel growth, the report says they may have also added to pension plan liabilities.

According to the report, diversified pooled fund managers posted a median return of 2.1% before management fees in the last three months of 2014. Measured from the beginning of the year, the median plan return was 10.8%.

Canadian equity managers earned a median return of -0.3% in the fourth quarter and 10.9% for the whole year. In both cases, this was better than the S&P/TSX Index, which posted quarterly and annual gains of -1.5% and 10.6% respectively. In foreign equities, fund managers posted gains in all categories but only outperformed the index in emerging markets.

2014 was a good year for bonds, with long-term, medium-term, and short-term bonds posting annual returns of 17.5%, 9.2% and 3.1% respectively. High-yield bonds achieved a return of 2.5% last year, while real return bonds provided a 13.2% return. For the year as a whole, Morneau Shepell says that fund managers earned a median return of 8.9% on their bonds, which was 0.1% above the benchmark.

"The takeaway for 2014 is not so much that stock markets did well, but that there was a significant decrease in bond interest rates," comments Jean Bergeron, a partner at Morneau and head of the firm’s asset and risk management consulting team. "The lower interest rates, however, led to a significant increase in solvency liability. For pension funds, which are required by law to fund all solvency deficiencies, the increased liability means that their financial positions very probably deteriorated in 2014. Funds that do not have to finance a solvency deficiency could very well have improved their financial position during the year."