Office of the Superintendent of Financial Institutions
Following OSFI’s issuance of
InfoPensions 26, OSFI received additional representation regarding the maximum going concern discount rate adjustment for plans using an overlay strategy. OSFI understands that an overlay strategy can be used to manage the interest rate risk (i.e., manage duration exposure) without making changes to investment holdings. As such, after further analysis, OSFI will allow that pension plans may first use the target asset mix of the plan fund without regard to the overlay strategy for the purpose of determining the maximum going concern discount rate, if appropriate.
If the overlay strategy is expected to impact the long-term expected return, an additional adjustment to the maximum going concern discount rate may also be made. Such additional adjustment should reflect the cost of overlay financing. The actuarial report must include all relevant justifications regarding how the maximum discount rate is determined and adjusted.