OMERS UPDATE

OMERS Updates

Proposed Plan Changes Summer 2020

OMERS is proposing plan changes to maintain the security and strength of the pension plan for current members and future retirees.

The OPFFA supports the changes as they are necessary to ensure the OMERS Pension Plan (the Plan) is more equitable between current and future retirees.

This page will walk you through a quick overview of where the Plan is now, where it is going and the proposed changes.

It is based on the presentation made to the OPFFA membership on May 15, 2020.  A video recording of the presentation can be accessed by CLICKING HERE 

Please take some time to click through the notes and Q&A's and watch the video to understand more about your retirement.

 

 

Expanded Update Topics

#1 How your OMERS pension contributes to the economy

The OMERS Pension Plan is a sizeable economic factor in the success of Ontario and individual members.

 

Jobs from OMERS Held Businesses

  • The plan itself maintains 38,000 jobs through the investments (businesses etc.) held by OMERS 

Jobs Created from Pension Payments to Retirees

  • The plan supports over 63,000 jobs through the pension payments made to retirees and the services these dollars pay for.

OMERS Total Contribution to Ontario's Economy

  • It contributes over $10 Billion dollars to Ontario's Gross Domestic Product

 

 

People Asked

Q - Where can I see what OMERS invests in and what we own?

A - Check out the OMERS web site and the subsidiary businesses they own or partner with.  Wikipedia has a good list of links, just CLICK HERE

 

#2 Management of the OMERS Plan Explained

OMERS is governed by two Boards of Directors appointed by sponsors of the Plan. The sponsors are the 14 largest stakeholders of the plan and include the OPFFA (as one) and other provincial employer groups and union groups. 

Because it is jointly sponsored by employees and employers, each fund the plan (through pension contributions) and govern the plan through their appointments to the two Boards of Directors.   Local IAFF executive boards share information through the OPFFA executive board to our representatives on the OMERS Boards.

The OPFFA representative on the OMERS Sponsor's Corporation Board (SC) is Frank Ramagnano out of IAFF Local 3888, Toronto.  The SC Board governs OMERS.  From time to time plan changes are recommended and made through the SC Board.

 

#3 Sustainability of OMERS and my Pension Guarantee

We see attacks on Pension Plans in the US and even here in Canada, in places like Alberta.  We spend good money funding a good pension plan, but are we under attack?  Will the proposed plan changes take the heat off?

  • Pension funding is vitally important, and a plan that can withstand the economic ups and downs successfully reduces the need to  increase pension contribution rates to compensate.  This keeps the focus off of the cost of the plan.  We know it is funded 50% by employers and 50% by employees but it can still be negatively spun in the public.
  • A healthy plan is a stable plan, is less likely to be under attack.

 

People Asked

Q - I am guaranteed my pension income, and have paid into it, they owe me my pension, correct?

A - The Plan is managed to maintain a fully funded or surplus state as much as possible, but there are only 2 was to maintain this if the economy/investments can't keep up.

  • Contribution rates for employees and employers can be raised
  • The retirement benefits of current employees can be reduced

There is no guarantor, or mechanism to pay pensions if OMERS were to fail financially.  This is why OMERS leaders forecast and look for ways to share the risk, not just limiting the burden to the active member and employer.

 

Q - Why aren’t investment returns enough?

A - Basically, the change in plan maturity, less active employees and more retirees puts an undue burden on active employees to sustain the plan.

  • Investments have performed well in the past, but the challenge our Plan faces in the future are real
  • OMERS is now paying out more in pensions annually than they receive in contributions in the same time frame, and the gap is widening

The more members and employers there are to support the Plan’s return to health, the more affordable the recovery is for everyone involved

#4 OMERS 2020 Proposed Plan Changes

The OMERS SC Board adopted changes to its decision making process that allow for more consultation time regarding proposed plan changes.  

On May 15 the OPFFA hosted a webinar detailing two proposed plan changes OMERS is considering this year.  

 

People Asked

Q - What are the two plan changes that OMERS is proposing:

A - Non-full-time enrolment:

  • Employees of an OMERS employer will have the option to join OMERS regardless of hours worked or salary earned
  • Currently, only non-full-time employees who meet the specified work hours or salary earned thresholds have the option to join OMERS.
  • The change would mean that all non-full-time employees will be eligible to join OMERS if they wish. 
  • This assists in several ways
    • Improves the appeal of non-full time work for potential employees
    • Strengthens the Plan by providing for more members
    • Avoids conflict of employees desiring to join and employers denying

Shared Risk Indexing:

  • Changing the scope of responsibility for plan funding
  • Currently OMERS pensions are fully indexed to inflation with very minimal restriction
  • Items such as economy and plan maturity can put financial pressures on the Plan 
  • When only active members and employers bear this risk, it puts an undue and unbalanced pressure on those two
  • Sharing the risk, by permitting the reduction of an annual index amount, will balance the load maintaining Plan stability
  • See the heading on Shared Risk Indexing for more information

 

Q - While I appreciate the OPFFA's information, where can I find more.

A - There is a lot more to read here at OntarioFireFighters.Org, but the OMERS website also has information on the proposed changes, along with some additional infographics.

  • The information is not specific to fire service members however is consistent
  • Link to the OMERS proposed plan changes by CLICKING HERE

 

 

#5 Shared Risk Indexing Explained

 

Shared Risk Indexing

Shared risk, if approved, draws a line in the sand.  Inflation increases are fully granted until the Board decides that the Plan must make changes for the overall health of the Plan.

 

People Asked

Q -  What does that mean?

A - This means that anyone retiring after January 1, 2023 may have the inflation increase of their pension that was earned after January 1, 2023 altered for a year to help bring the pension fund to a healthy position.

 

Q - So, if I retire after January 1, 2023, my pension is no longer indexed for inflation?

A - NO! Incorrect!

  • OMERS pensions will still be fully indexed except for pensions earned AFTER Jan. 1, 2023
  • If you earn pension time after January 1, 2023, only that portion is subject to adjustment
  • The OMERS Board of the day MUST vote 2/3 in favour to make any reduction in the indexing for that particular year (for those years earned after 2022).
  • The reduction of that portion of indexing is assessed on an annual basis.
  • OMERS can also still change contribution rates of active employees and employers to address the health of the plan.

 

Q - So, if I worked 20 years before January 1, 2023 and 10 years after (retiring in 2033) how would it work?

A - Simply, if in 2035, OMERS voted to reduce your indexing from 2% to 1%...

  • Full index on 20 years of earned service     = 2%
  • Partial index on 10 years of earned service = 1%
  • Simple math, (2% x 66.6%) + (1% x 33.3%) = 1.66% Annual Raise for that year

 

Q - What are the different impacts of Shared Risk Indexing between active and retired members?

A - 

  • For members who are currently retired – there will be absolutely no impact…except that their Pension Plan will be more sustainable as a whole!
  • For active members, the service you earn after 2022 may not grow as fast as inflation in a given year. – but only if the SC Board determines when the health of the Plan cannot sustain full inflation increases
  • As the numbers grow the responsibility is shared by more.  This means individually, the need is less and the impact on an individual is less
  • It’s important to remember that your pension will never go down – regardless of when you earn it and your benefits earned before 2023 would increase every year with inflation
  • OMERS recognizes inflation increases are a valued benefit, which it intends to provide.

 

Q - What factors are considered when the SC Board determines the “Health of the Plan”?

A - There are several factors which are considered when determining the Health of the Plan including:

  • Contribution Rates levels
  • Our Funding Status
  • Ratio of active to retired members
  • The status of the economy

Inflation increases would only be reduced when it was required to maintain Plan sustainability, and then, only as contribution rate increases become unaffordable

 

Q - Why not simply increase contribution rates?

A - Active Members are paying a lot (especially NRA 60 groups).

  • OMERS had to increase contributions after the 2008-2009 recession and have kept contributions at those levels since then
  • As the Plan is maturing, there will be a relatively smaller group of active members and their employers from whom to collect contributions.
  • Therefore, the impact of increasing contributions rates to address future shocks will be less helpful than it was in the past (there are less people to pay the costs relative to retirees.)

Q - Do other Defined Benefit Pension Plans have Shared Risk Indexing?

A - YES – other plans including HOOPP (Healthcare of Ontario Pension Plan) and OTPP (Ontario Teachers’ Pension Plan) have similar concepts in place. However, the OMERS proposal is a step above these plans,

  • Those plans have Conditional Indexing which is similar to Shared Risk Indexing with one important difference:
    • With Conditional Indexing, pension plans decide every year how much indexation to grant, if any.
  • Shared Risk Indexing is different because inflation increases would be fully granted for pension payments until the SC Board determines that it should reduce inflation increases

 

#6 OPFFA Position on the Proposed Changes

The OPFFA Executive Committee unanimously endorses the two OMERS proposed plan changes.

In our deliberations both now and of past proposed changes, we have determined that these are fair and reasonable for current and future members of the Plan.

After review of the current and predicted make-up of the plan, longevity and other evidence we are confident that limiting the response to just increasing contributions is not sustainable.  Sharing the obligation when times are tough will allow the Plan to withstand economic shocks and keep it strong and valuable for retirees, members and employers.  There is simply not enough money generated by contributions alone to allow the Plan to withstand a significant economic shock.  This is highlighted now more than ever as the post-COVID reports on the global economies are emerging. 

Our OMERS SC Representative and Co-Chair of the Board, Frank Ramagnano, is knowledgeable and a valued team member of his peers.  The recommendation from the board members and our representative demonstrates their tangible support and action for the sustainability of the Plan.  As any additional details flow, the OPFFA Board will be apprised and have our voice heard at the table so that the interests of fire service members are represented.

Other supporting sponsor groups include;

  • The Police Association Of Ontario (PAO)
    • The Police Association of Ontario supports the proposed changes as they are necessary to make the Plan more equitable between current and future members.
    •  Link to the PAO OMERS information page
  • The Ontario Secondary School Teachers Federation (OSSTF)
    • the proposed changes are supported by our employee colleagues the OSSTF.
  • Other Employee Groups are announcing their support and will be listed

 

Past Plan Change Announcements are available at the OMERS.COM site - CLICK HERE

 

People Asked

Q - The OPFFA has explained Shared Risk Indexing, but why now, why can't it wait and be introduced when a crisis hits?

A - The fact is, this should have been introduced earlier, Plan changes are not simple to make.  The time is now and the strength of Shared Risk Indexing is not realized immediately but grows over time.

  • Shared Risk Indexing would begin the slow process of expanding the number of members who will collectively share the impact by changes to inflation increases
  • In our current structure, when a crisis hits, the SC Board will only be able to change the Plan for active members
  • By acting now, a pool of future retirees with employers and active employers can share the risk of a crisis

Over time, the risk of supporting the Plan would be shared across employers and a larger number of members, reducing the overall impact for any one individual.  

Q - In the future, if they reduced my OMERS pension cost of living increase, and the plan became healthier, would the SC Board bring inflation increases back?

A - OMERS recognizes inflation increases are a valued benefit, which it intends to provide,

  • If inflation increases were to be reduced, annually the Board would assess whether the Plan’s health would allow inflation increases to resume
  • Restoring inflation increases would take priority over contribution rate decreases

 

Q - If I have a question or want to submit feedback, what should I do?