The Office of the Superintendent of Financial Institutions (OSFI) has good news for plan sponsors and insurers today. It has announced that buy-in annuities issued by a life insurance company are permissible investment options for pension plan.
A draft policy was issued in March.
The buy-in annuity policies would be similar to traditional annuities, but instead of issuing individual certificates to the covered retirees, the policy would pay the aggregate pension amount to the pension fund. The plan administrator would be responsible for administering benefits to the retirees. Through this, plan sponsors of underfunded plans would be able to hedge against investment, longevity and inflation risk for any liabilities covered by the policy
“The final policy is very similar to the earlier draft and confirms that annuity buy-ins are permissible pension plan investments that do not trigger top-up contributions from underfunded plans,” says Brent Simmons, senior managing director, DB solutions with Sun Life Financial. “This provides plan sponsors of underfunded plans with the opportunity to transfer longevity and investment risk to an insurance company without the added expense of a top-up contribution.”
The full policy can be found