News

OMERS 2013 Contribution Rates and Plan Changes Announced

July 06, 2012

OMERS Sponsors Corporation (SC), which represents active and retired members and employers, approved two plan changes in a meeting on June 28, 2012:

  • Contribution rate increases were set for 2013 – the third increase as part of a three-year strategy announced in 2010; and
  • A cap on contributory earnings, equal to seven times the CPP earnings limit (Year’s Maximum Pensionable Earnings or YMPE).

In addition to setting the contribution rates for 2013, the SC approved a new method for allocating contribution rates in the future. These changes do not affect OMERS retired members, deferred members, or survivors.

As well, the December 31, 2011 valuations for the OMERS Primary Pension Plan (OMERS Plan) and the OMERS Supplemental Plan for Police, Firefighters and Paramedics (Supplemental Plan) will be filed.

Contribution rates

Contribution rate changes for the OMERS Plan are effective with the first full pay in 2013.

2012 2013
Normal retirement age
65 members
On earnings up to CPP earnings limit*

8.3%

9.0%

  On earnings over CPP earnings limit*

12.8%

14.6%

Normal retirement age
60 members
On earnings up to CPP earnings limit*

9.4%

9.3%

  On earnings over CPP earnings limit*

13.9%

15.9%

*The CPP earnings limit in 2012 is $50,100; the limit in 2013 will be higher. OMERS members pay a lower rate on earnings up to the YMPE because OMERS and the CPP are designed to work together to provide pension benefits. Contributions are tax deductible which lessens the net impact on Plan members.

In 2010, OMERS announced a three-year plan to increase contribution rates. The contribution rate increases set for 2013, are the third increase.

  • A flat 1% contribution rate increase per side was implemented in 2011.
  • In 2012, the average increase in contribution rates was 1% per side, but the actual increase in each of the four component rates showed more variation.
  • Also in 2012, the SC conducted a comprehensive review of the principles for setting contribution rates, leading to the 2013 rates above.
  • The rates for 2013 affect members differently at various earnings levels and normal retirement age groups (65 and 60); however, the increase averages out to be 0.9% for members and employers.
  • These rates will provide the OMERS Plan with the total contributions required to fund the OMERS Plan until the next actuarial filing.

Examples of biweekly contribution increases, based on 26 pay periods

Normal retirement age 65

Contributions* Difference per pay period
Total annual
earnings example

2012

2013

Gross**

Net**

 $40,000

 $127.69

 $138.46

 $10.77

 $8.17

 $65,000

 $233.28

 $257.09

 $23.81

 $16.39

Normal retirement age 60

Contributions* Difference per pay period
Total annual
earnings example

2012

2013

Gross**

Net**

$65,000

$260.79

$270.32

$9.53

$6.56

$90,000

$394.44

$423.20

$28.76

$16.28

*This calculation uses the 2012 YMPE ($50,100).
**Net differences after tax are based on 2012 Federal and Ontario marginal tax rates and assume the member has taxable income equal to the annual earnings shown.

These rate increases are intended to be temporary until the deficit is eliminated, and are part of a long-term strategy to return the OMERS Plan to full funding.

New method for allocating contribution rates

  • Starting 2014, a new method for allocating any contribution rate adjustments for the OMERS Plan will be used.
  • The new method strikes a balance for different member groups among the various contribution rate setting principles. These principles include transparency, limited volatility, value for money, pooling, limited complexity and cost effectiveness.

Cap on contributory earnings

This change will cap a member's earnings for pension purposes and it will only affect members earning over seven times the CPP earnings limit. (If the cap were in effect for 2012 this would be 7 x $50,100 or $350,700.)

This change applies to the OMERS Plan, the Retirement Compensation Arrangement (RCA) for the OMERS Plan, and the Supplemental Plan. This cap is in addition to the existing cap on contributory earnings (i.e., for incentive pay).

The effective date of the cap on contributory earnings is:

  • January 1, 2016 for members enrolled before January 1, 2014, and
  • January 1, 2014 for members enrolled on/after January 1, 2014.

Details for OMERS employers will be posted in the Employer Administration Manual.

Filing Plan valuations: Pension plans must file an actuarial valuation – showing assets and obligations –
at least once every three years. The decision was made to file the December 31, 2011 OMERS Plan and Supplemental Plan valuations with the regulators. The next required filing will be the December 31, 2014 valuation.

OMERS is one of the top pension plans in Canada, and like many other major public sector plans, is on course to address funding challenges. More about plan funding and the value of an OMERS pension is in Member News.