2014 Specified Plan Change Proposals

 

Decisions

At its June 25th meeting, the OMERS Sponsors Corporation (SC) considered the eight Specified Plan Change (SPC) proposals that were tabled this year, and approved the proposed change in contribution rates.  Six of the SPC proposals did not receive the necessary 2/3s support of the SC Board and failed, and the NRA 60 – Police Civilians proposal was withdrawn by its proponent.  None of the SPC proposals were referred to arbitration. 

Change in Contribution Rates

The newly approved contribution rates fully reflect the new methodology and result in a 0.1% reduction in the (Normal Retirement Age) NRA 60 contribution rates with no change to the NRA 65 contribution rates.

In 2012 the SC approved a methodology for allocating the overall contributions into the four rates (for each NRA and earnings above/below the CPP earnings limit).  As part of the approach, the SC approved interim contribution rates with a commitment to fully implement the new methodology by January 1, 2015. 

The contribution rates effective January 1, 2015 are as follows:

    

   NRA 60 

  NRA 65 

 Below CPP earnings limit       

 9.2%

 9.0%

 Above CPP earnings limit

 15.8%

 14.6%


A description of the methodology for allocating contribution rates is available in our Statement of Plan Design Objectives and Strategy (see 5(iv) on page 7).

The June decisions mark the end of the 2014 SPC process.  The 2015 SPC process officially kicks off on March 1, 2015.  There is plenty of time before then for you to submit a Stakeholder Request for Plan Change and potentially influence the 2015 SPC proposals. 

The eight SPC proposals tabled in 2014 are described below for information purposes.

2014 Proposals
Pension Accrual Change to 1.85% - Failed June 25, 2014
Early Retirement Reductions - Failed June 25, 2014
Reduced Indexing - Failed June 25, 2014
Indexing Suspended for 5 Years - Failed June 25, 2014
Disability Waiver - Failed June 25, 2014
NRA 60 Paramedics - Failed June 25, 2014
Adjust Contribution Rates - Approved June 25, 2014
NRA 60 Police Civilians - Withdrawn June 25, 2014
Pension Accrual Change to 1.85%
proposal |
example |
rationale |
proposal details
Current
Proposed

A member earns a pension (lifetime plus bridge) equal to 2% times the member's "best-5" average pensionable earnings times credited service (to a maximum of 35 years).

For the portion of "best-5" average pensionable earnings above the 5-year average of the Canada Pension Plan earnings limit (approx. $49,800 in 2014), the 2% benefit accrual rate would be changed to 1.85%.

The proposal would also allow accrual of 38 years of credited service, an increase from the current maximum of 35 years.

No changes to:

  • pensions earned before January 1, 2016
  • calculation of the bridge benefit
  • members who would have "best-5" average pensionable earnings below the 5-year average of the Canada Pension Plan earnings limit
Examples

Example 1

Jane earns $49,000 per year, which is less than the Canada Pension Plan (CPP) earnings limit. The pension that Jane earns would not be impacted by this change as it only impacts those individuals with earnings in excess of the CPP earnings limit.

Example 2

Janet earns $90,000 per year. When she retires she will have accrued 20 years of service prior to the effective date of the proposed change and 15 years of service after.

The lifetime pension she earned prior to the effective date of the change would not be impacted and is determined based on a 2% accrual rate, which works out to about $29,300.

For the 15 years of service after the effective date of the change, her lifetime pension will be based on an accrual rate of 1.85% which works out to $21,000, instead of the $21,900 it would have been if it had been based on a 2% accrual rate.

In total, Janet’s lifetime pension would be $50,300 ($29,300 + $21,000) rather than $51,200 ($29,300 + $21,900).

Together with Janet’s bridge benefit of $11,800 (which would be unaffected by the change), Janet’s total pension (lifetime plus bridge) would be $62,100 rather than $63,000.

The sole purpose of the above example is to provide an illustration of one possible interpretation of the SPC proposal. Since other interpretations may be possible, the above example should not be relied on for any purpose, including financial planning.

Rationale
Contribution rates are at an all-time high. The cost reductions associated with the change in benefits can improve the funding situation. The full rationale can be viewed in the proposal.

It is estimated that the proposed change would save the plan roughly $0.2 billion over the next ten years.
Current
Action Date: Tabled April 22, 2014
Reference: SPC#14-01
Change History: Not applicable
PDF Download: SPC#14-01