Canada's Office of the Superintendent of Financial Institutions on Thursday said it expects administrators of all federally regulated pension funds in Canada to understand the risks involved in entering into insurance or swap contracts to hedge longevity risk, conduct stress tests to determine their impact on pension liabilities, and develop adequate controls to manage those risks.
Pension funds should also determine whether entering into such contracts is in beneficiaries' best interests and whether the value of the contacts is worth the cost.
“There is no requirement that plan administrators obtain approval from OSFI to enter into such a contract,” according to the guidance, posted on the OSFI's website. “Plan administrators continue to be responsible for paying beneficiaries' benefits, including in the event that a counterparty fails to make the agreed upon contractual payments to the pension plan.”
The guidance is on OSFI's website.