The asset mix for Mercer's model pension plan is:
"Asset mix: 42.5% DEX Universe Bond Total Return Index; 25% S&P/TSX Composite; 15% S&P 500 (CAD); 15% MSCI EAFE (CAD); 2.5% DEX 91 day T-Bills"
Poor financial markets might be behind the current low reading of the index, but the real problems started in the early 2000s.
The less said about acutarial models in general and Mercer in particular, the better. In my opinion, funds in DB plans (generally) don't have anywhere close to the appropriate asset mix: their asset mix is too heavy in terms of equities and the liabilities are far greater than regular modeling shows due to longevity risk issues. On the DC side, the risk is carried by the unit holders hence the big push to switch over; on the DB side, I am an advocate of liability driven investing and an ALM approach. This isn't easy given the lack of liquidity in the CDN bond market but the reality is that with an aging population that will live longer, we will need more fixed income not the risk of a greater equity component.
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