Sponsors Corporation

Like most major pension plans, OMERS has enjoyed some strong investment returns over the past few years. Yet, even with these gains, the Plan has not fully recovered from the 2008 financial crisis. Ten years after the fact, we still have a deficit (funding shortfall) of $5.4 billion. There is still work to be done – and challenges to overcome.

The hope and expectation is that the Plan will be fully funded by 2025 – assuming that all goes consistently well. It does not anticipate another significant market correction. Nor does it fully account for some of the longer-term realities that will increase the cost of the current Plan in the future – substantially in some cases.

Extensive analysis confirms that the cost of the current Plan will continue to rise over time. This leaves the Board with three fundamental options: (1) charge members and employers more contributions for the current Plan; (2) keep contributions at current levels, but reduce benefits over time; or (3) find the best possible balance between the two.

There are basically five key realities that will continue to impact the Plan’s long-term relevance and financial health: Plan maturity, longevity (aging membership), workforce trends (declining membership), Canada Pension Plan (CPP) enhancements, and global economic factors that will impact our ability to generate consistently high investment returns in the future. Collectively, these realities will continue to influence the management, investment, funding and, ultimately, design of the Plan.

The OMERS Sponsors Corporation is responsible for Plan design, including contribution levels. They will leverage the advice and guidance of internal and external pension plan experts, as needed.

For the purposes of the Review, considering sustainability means asking whether our pension plan design can continue, over the long-term – 20, 50, 100 years out. It’s about consistently delivering an appropriate range of benefits within an acceptable range of costs – and without favouring one generation over another.

The intent is not to cut benefits. Rather, the intent is to determine if there is a better and more equitable way to deliver the pension promise in a changing world. That includes the possible introduction of pension improvements, such as mandatory participation for non-full-time workers.

It’s premature to say. The Review will help us determine if there is a better and more effective way to deliver benefits in the future, and at what cost. That said, it will be up to the SC Board to determine what, if any, Plan changes will be considered as a result of the Review.

If the Review results in proposals for changes to the pension plan, members, unions and employers will have an opportunity to comment on those proposals before the SC Board of Directors votes on them. As always, any specified changes to the Plan will require approval from a two-thirds majority of the SC Board of Directors, which is composed of an equal number of employer and member representatives.

There is no discussion around eliminating indexing altogether. While no decisions have been made at this point, the SC Board is exploring the possibility of introducing “conditional indexing” at some point in the future. Unlike “de-indexing,” conditional indexing provides indexing when the Plan is financially healthy. If the Plan gets into financial trouble, indexing can be reduced (or suspended) on a temporary basis. As such, conditional indexing provides an essential lever or temporary safety valve to relieve funding pressures if and when we need it. 

They won’t. If you are retired before any change takes place, your pension, including guaranteed indexing, is secure. As a retiree, you will continue to receive full indexing under the terms of the Plan. The changes, if any, will only impact members (active and deferred) who accrue (earn) pension benefits from the effective date of the change.

It is important to note that any changes would have no impact on benefits that active members accrue (earn) up to the date the change takes effect. For example, members would receive full indexing for service up to the effective date plus conditional indexing on the portion of their service after the effective date of the change.

To take the example further, let’s assume the Plan introduces conditional indexing, effective January 1, 2021 – when you have 28 years of service. You would receive full indexing on all 28 years of your service prior to the effective date. If you work another two years – let’s say to January 1, 2023 – conditional indexing would apply only to your service starting January 1, 2021 (two years).

As outlined above, indexing would be provided when the Plan’s financial health is strong. Given that improvements in life expectancy are predicted to continue, future members will likely collect their pensions for longer than current retirees – which will increase the value of the total benefit they receive from OMERS.

No. The OMERS Act requires the OMERS Plan to be a defined benefit plan. That will not change as a result of this Review. We don’t expect the Review to consider proposals that are completely outside the scope of the OMERS Act.

We think engagement is critical to the success of the Review. We will engage with members, unions, employers, sponsors and stakeholders in a variety of ways, including written updates, focus groups, interactive meetings and webcasts.
 
If you have comments about the Review that you want to share immediately, please give them to us – and we will refer them to the Sponsors Corporation, which is leading the Review.

The Review is scheduled for completion by the end of the year. The Board is expected to vote in November on which changes, if any, will be made. They will also decide the timeline for any changes – there will be no changes implemented before the end of 2018 and we don’t expect to see changes before 2021.

As part of our regular Plan change communications process, we will notify members, unions and employers of the results of the Review – and post those results on the SC website. As always, any specified changes to the Plan will require approval from a two-thirds majority of the SC Board of Directors, which is composed of an equal number of employer and member representatives.

Please e-mail any inquiries to contact@omerssc.com.