OSFI Issues Guideline for Derivatives in Private Pension Plans

The Office of the Superintendent of Financial Institutions (OSFI) issued guidance outlining factors to consider when administrators of federally regulated private pension plans develop policies and procedures for the sound risk management of derivative activities. OSFI states that while derivatives can be effective tools for risk mitigation, the associated risks must be identified, measured, monitored and controlled as part of a pension plan’s comprehensive risk management framework.

Plan administrators should consider how this guideline applies to their pension plan, keeping in mind the plan’s investment objectives, risk tolerance and other relevant factors. Prudence may require some plans to have more rigorous practices and procedures than others. Prudence may also lead an administrator to a determination that derivative transactions, or certain types of derivatives, are inappropriate for a particular pension plan. It is the responsibility of the plan administrator to make these determinations.