OMERS Sponsors Corporation (SC) has approved temporary changes to support the funded status of the OMERS Primary Plan:
*CPP earnings limit in 2010 is $47,200; the limit in 2011 will be higher.
For example, Alex's annual earnings are $50,000 in 2011. The increase in the amount of contributions he pays per bi-weekly paycheque is $19.23. The amount he actually pays drops to $13.24, once his additional tax savings are factored in.
For example, Maria's annual earnings are $75,000 in 2011. The increase in the amount of contributions she pays per bi-weekly paycheque is $28.85. The amount she actually pays drops to $19.38, once her additional tax savings are factored in.
*Based on 26 pay periods annually and the 2010 CPP earnings limit. As the 2011 limit will be higher, the actual dollar increases in contributions may be slightly less than those indicated here.
The changes were undertaken as a temporary strategy to support the funded security of the OMERS Primary Plan. The OMERS Primary Plan had a funding shortfall of $1.5 billion at December 31, 2009.
These changes are necessary to offset nearly $5 billion of net losses which will be added to the Plan's balance sheets over the next four years - mostly from the 2008 global market downturn.
"The SC has a responsibility to manage surpluses and deficits through benefit and contribution rate changes," said Marianne Love, OMERS SC Co-Chair. "The contribution rate increase in 2011, along with the planned future rate increases and the temporary changes to terminating members' benefits, are the result of careful consideration of the options for addressing the growing deficit."
"We will continue to carefully monitor the Primary Plan's funded status, and to make any decisions on changes through our annual planning cycle," said Brian O'Keefe, OMERS SC Co-Chair.
Learn more about Plan Funding.
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.
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.
These changes only affect OMERS Plan service 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.
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.
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 credited service earned after this date.
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.
If you have any questions or comments about these changes, please send them to email@example.com 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.