The Office of the Superintendent of Financial Institutions (OSFI) has issued a policy advisory to administrators of federally regulated DB pension plans that are considering entering into a longevity insurance or longevity swap contract.
The policy advisory applies to ongoing pension plans and describes the broad types of longevity risk hedging contracts that exist, the risks to pension plans associated with these types of longevity hedges, considerations for plan administrators that are considering entering into a longevity risk hedging contract as a way of reducing their pension plan’s exposure to longevity risk and OSFI’s expectations for plan administrators that choose to enter into a longevity risk hedging contract.
A plan administrator that’s considering entering into a longevity risk hedging contract must not only understand the risks and benefits that this transaction introduces to the pension plan, but also understand the terms of the contract.
It is OSFI’s view that a longevity risk hedging contract is a permissible investment provided that it is consistent with the terms of the pension plan and the plan’s statement of investment policies and procedures, that it complies with the Pension Benefits Standards Act and the regulations, and that the administrator exercises proper due diligence.
More information is available on OSFI’s website.
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