Temporary benefit calculation changes
Changes are temporary
Contribution rate increases and benefit measures are intended to be temporary, until the Plan again reaches a fully funded position. At that time, contribution rates would be adjusted to the level required to provide benefits going forward, and the benefit changes would be reinstated on a go-forward basis.
Starting on January 1, 2013, the benefit calculation changes will affect members who terminate employment and who are not yet eligible for an early retirement pension. These members will no longer have pre-retirement indexing and early retirement subsidies included in the calculation of their benefits.
Who is affected by the benefit changes?
Effective January 1, 2013, the changes will affect members who terminate employment before age 55 (if their normal retirement age is 65) or age 50 (if their normal retirement age is 60).
Members who are within 10 years of their normal retirement age when they terminate employment are not affected. Retired members and anyone receiving an OMERS survivor pension are also not affected.
What do the changes affect?
These changes only affect OMERS Plan earned on a "go-forward" basis – from the effective date of the change (January 1, 2013) onwards. They do not affect benefits that members earn for service up to the end of 2012. This means that when an affected member's termination benefit is calculated from January 1, 2013, it will be done in two parts: pre-2013 and post-2012. The pre-2013 portion will include pre-retirement indexing and early retirement subsidies, while the post-2012 portion won't".
Again, these changes will only affect members who are not within 10 years of their normal retirement age when they terminate employment after 2012.
What do the changes mean to my OMERS pension?
You contribute towards your future pension, which is based on an average of your highest ("best five") earnings and your credited (paid) service in the Plan. The pension to which you're entitled is your normal retirement pension – the pension that would be paid if you were to retire at your normal retirement age (65 or 60).
Currently, if you terminate before you're eligible for an early retirement pension (more than 10 years away from normal retirement age), the OMERS Plan includes pre-retirement indexing and early retirement subsidies when we calculate the value of your pension. Starting on January 1, 2013, affected members' pension benefits earned after 2012 will be based on the actuarial value of their normal retirement pension – without pre-retirement indexing and early retirement subsidies.
What is "pre-retirement indexing"?
Currently, pre-retirement indexing is the inflation protection we apply when we calculate a terminating member's OMERS pension benefit. This benefit extends from the date a member leaves their employer until the date their pension begins. The indexation applies regardless of whether the member chooses to leave their pension in the OMERS Plan, or transfer their commuted value out of the OMERS Plan. Starting on January 1, 2013, affected members will not receive this benefit on earned after this date.
What are "early retirement subsidies"?
Currently, OMERS includes some "extras," such as the OMERS "bridge" benefit and early retirement provisions, when we calculate a terminating member's pension benefit. These features are in addition to the lifetime pension (payable at normal retirement age) an OMERS member earns, and are an added cost to the Plan. Effective January 1, 2013, these features will no longer be included for an affected member's service earned after 2012.
The bridge benefit temporarily supplements a member's OMERS Plan pension until the CPP normal retirement pension begins at age 65. Early retirement provisions determine whether the member would be entitled to an unreduced early retirement pension before they reach their normal retirement age and the reduction factor that is applied if a member is not entitled to an unreduced early retirement pension.
More info to come...
At its September meeting, the SC will consider the Plan amendment language which will implement the approved 2011 contribution rate increases and the 2013 benefit changes. OMERS is developing further member case examples and cost analyses, and will provide more details on these changes and their impact via www.omers.com
and in our future newsletters.
If you have any questions or comments about these changes, please send them to firstname.lastname@example.org to the Superintendent of Financial Services at FSCO, 5160 Yonge Street, P.O. Box 85, Toronto, ON M2N 6C9.
This article appears in Member News 89 - Summer 2010.
* Members who have a normal retirement age of 60 receive the OMERS bridge benefit until age 65 – for five years after their normal retirement age. This five-year portion of the bridge benefit will still be included in the calculation of these members' benefits when they terminate employment.