If the proposed change to the early retirement provision is approved, NRA 65 members would still be able to retire as early as age 55 and collect an immediate pension. The only difference is that the portion of pension for service after the effective date of change would be reduced if NRA 65 members retire before age 60. 
 
Similarly, NRA 60 members don’t have to wait until age 55 to retire, but the portion of their pension for service after the effective date of change would be reduced if they retire before age 55.
 
The portion of pension benefits accrued (earned) up to the effective date of any change would not be impacted and would be calculated based on the current Plan terms. To repeat, only the benefits accrued (earned) after the effective date of change would be affected.

See the next question for an example of how a reduction would apply if the changes are approved. 

An actuarial reduction is calculated using standard industry practices. It reflects the fact that you are starting to receive a pension earlier, and will collect it for longer, than if it were paid starting from your normal retirement age (60 or 65). 
 
Here’s an example of how a reduction would apply if the changes are approved:
 
Martha is 54 years old on the effective date of the change (let’s assume January 1, 2021 for this example). She wants to retire at age 55 (NRA 65) and so she works an extra year after the effective date and retires on January 1, 2022. The pension Martha earned during the first 29 of her 30 years would remain unreduced – these benefits are for service before the effective date. 
 
This unreduced portion represents 96.7% of her total pension (29 out of 30 years). Which means that the actuarial reduction is applied to only 3.3% of her total pension (1 out of 30 years). 

Applying the reduction
The actuarial reduction varies by age but is approximately 5% per year for each year she retires before age 65. Roughly calculated, Martha would receive a 50% reduction (5% x 10 years) applied to the portion of her pension (one year) she worked after the effective date, so 50% of the 3.3% of her total pension. The rest of her pension remains fully unreduced.  

In total, Martha’s annual lifetime pension is reduced by about 1.7%. 

Compared to our primary peer plans – OPTrust, Ontario Teachers’ Pension Plan (OTPP), Colleges of Applied Arts & Technology Pension Plan (CAAT) and Healthcare of Ontario Pension Plan (HOOPP) – we are the only plan that is currently underfunded. We also have the highest discount rate among our peer plans. If we had a discount rate that was more in line with our peers, our deficit (liabilities) would be bigger than the $5.4-billion reported in our last annual report. 

The discount rate is an assumption that is an expected long-term rate of return for the OMERS Plan assets, less a margin for adverse uncertainty. In simpler terms, it reflects what the Plan's investments might reasonably be expected to earn over the long term, about 7 times out of 10.
 
The higher the discount rate, the lower the liabilities that are recognized in the short term. On the flip side, the lower the discount rate, the higher our liabilities. By reducing our discount rate gradually over time, we can begin to insulate the Plan from future market downturns – and protect future members in the process.
 

Under the current Plan rules, eligible service for early retirement purposes is service with any OMERS participating employer that isn’t credited service. It can help bring you closer to an unreduced early retirement pension. Your eligible service is added to your credited service when calculating your early retirement pension factor.
 
Under the proposed change, only contributory service would be used to calculate your early retirement pension factor. Contributory service takes into account the period over which you made contributions to the Plan. For example, if you leave your employer and receive a lump-sum payment from the Plan, the proposed change wouldn’t automatically consider that service to be eligible service if you rejoin the Plan at a later date. Any eligible service you have on your OMERS membership record on the effective date of the change would not be affected.

In the late 1990s, federal tax legislation led to contributions to the Plan being suspended temporarily. It’s hard to predict what the Plan’s funded status would be today if the contribution holiday had not been implemented, as this would also change other decisions made in the past. Ultimately, that’s water under the bridge – and not something that OMERS had full control over. 
 

We know that, without changes, the cost of the current Plan will continue to increase steadily over time. 
 
We also know from our discussions that, in general, there is a limited appetite to increase contributions beyond the current levels. That’s particularly true for employers, younger members, and union sponsors who would prefer to leave more money on the table for future bargaining efforts.
 
While we understand that some members and sponsors support contribution increases – particularly those members nearing retirement – this appears to be the minority view.

Any changes approved by the SC Board in November are unlikely to be adopted before January 1, 2021. That would give us at least two full years to finalize administrative processes and systems requirements. 
 
It would also give current members two more years to accrue (earn) benefits under the current Plan – and to prepare for any changes that might impact them. 
 
All changes are forward looking. The changes (if any) would only apply to service after the effective date of the change. Benefits accrued (earned) up to the effective date of any change would not be impacted.

Under the OMERS governance structure, the SC Board is solely responsible for the design of the Plan, including both benefit and contribution levels. As such, any specified changes to the Plan will be voted on by the Sponsors Corporation (SC) Board and will require a two-thirds majority vote of approval.
 
As a reminder, the SC Board is made up of equal representation from employer and employee organizations. Board Directors are appointed by the Sponsors.

Unfortunately, we aren’t able to address member-specific scenarios at this stage. If the Plan changes are approved, additional resources will be available to help members with their retirement planning needs.