Expected changes to Commuted Value (CV) standards took effect April 1, 2009. This updates and confirms information we previously posted on www.omers.com.
OMERS has kept members and employers up to date throughout the change process – in both print and on our website.
Background
The Actuarial Standards Board (ASB) has changed the Commuted Value (CV) standards – used to calculate commuted values (the present-day value of a future pension benefit). The ASB (www.asb-cna.ca) is responsible for setting standards for Canadian actuaries.
The changes, in particular the adjustments to discount rate assumptions, could decrease CV amounts – by about 5% for an older member and up to 20% for a younger member. This could affect some OMERS members who are leaving the plan and/or considering a CV option.
1) Why are OMERS CVs affected by these changes?
The PBA requires that pension plans follow the Canadian Institute of Actuaries Standards of Practice for CV calculations. These Standards identify the requirements for the CV calculation, including the assumptions that must be used and the benefits that must be included.
The Ontario Pension Benefits Act (PBA) requires pension plans to offer a lump sum transfer or payment when a plan member who is entitled to a benefit terminates their membership. The CV is the amount of this lump sum payment payable today, and it is estimated to be equal in value to the expected future series of pension payments.
2) Which pension plans are affected?
All Canadian defined benefit pension plans, including OMERS, must follow these rules.
3) What is the implication of electing a CV?
By electing the CV option following termination of employment and plan participation, the member gives up all rights to the guaranteed lifetime pension (and associated benefits) under the pension plan.
The member will receive whatever amount of income the CV produces in future (plus any income generated by the investment of the CV), either as periodic withdrawals from a Locked-In Retirement Income Fund, for example, or as monthly payments from an annuity the member purchases from a life insurance company.
4) Who may be affected by the CV Standards change?
The changes may affect members who are eligible to transfer their Commuted Value out of the OMERS pension plan. This includes members who have left their OMERS employer and not yet elected what to do with their OMERS pension, as well as members who elect a CV transfer in future.
5) Who would not be affected?
The changes won’t affect members who are eligible to receive an OMERS retirement pension (those who are at least age 55 if their normal retirement age is 65, or at least age 50 if their normal retirement age is 60). Once a member becomes entitled to an OMERS retirement pension, the CV option is no longer available. (Current OMERS retirees are also not affected.)
6) How may commuted values be affected?
The changes to the calculation rules may decrease the commuted value of an older member by about 5% and that of a younger member by up to 20%. However, if a member keeps their pension entitlement with OMERS, it will not be affected.
7) Why did CVs change?
Commuted Values are affected by many factors that change over time – including life expectancy, interest rates and inflation. The Actuarial Standards Board revised the rules that govern the calculation of CVs to make them better reflect the current economic value of these benefits.
8) How long does OMERS guarantee a CV amount?
For members who have terminated their employment and received a commuted value option on their Benefit Application Form, OMERS will guarantee the CV amount for 6 months.
