Managing Benefits and Contributions
It is the responsibility of the OMERS Sponsors Corporation (SC) to decide when it’s appropriate to change benefits and contribution rates. A key reason for making changes is to manage the financial health of the plan. For example, an increase in contributions or decrease in benefits would improve the financial health of the plan. Conversely, a decrease in contributions or increase in benefits may be possible if the financial health of the plan is very robust.
The SC makes these decisions considering the funded status determined in the annual valuation which is an indicator of the plan’s current financial health. Their decisions differ depending on the funded status. The chart below, while not prescriptive, summarizes the types of action the SC would consider when reviewing the benefit and contribution levels of the Plan.
There are three management zones defined by different ranges of potential funded status, and which lead to different actions. When the plan’s funded status is in Deficit the SC would take actions to return the plan to a fully funded status such as increasing contributions, reducing benefits or a combination. When the plan is no longer in Deficit but is in either Partial- or Full Reserve, opposite actions will be possible – reductions in contributions or increases in benefits.
The SC recently approved a plan change which would enable it to reduce future inflation increases on benefits earned after December 31, 2022. Changes to the level of indexing provided on benefits earned after December 31, 2022 are considered as part of this process. For clarity, inflation increases on benefits earned before January 1, 2023 are not subject to reduction under this process.
The SC’s ability to reduce future inflation increases on benefits earned after December 31, 2022, although not a new concept for OMERS, is a new concept for many of our members. So, to further clarify the above table, a reduction in inflation increases would only be considered when:
The plan is in Deficit as identified by the annual valuation, and
The minimum funding requirement is greater than the current contribution rate
Inflation increases can continue while the Plan is in deficit if the minimum funding requirement is not greater than the current contribution rate.
If inflation increases were to be reduced, annually the SC will assess the Plan’s health annually and determine if inflation increases can resume. Restoring inflation increases would take priority over contribution rate decreases.
Other changes
OMERS keeps a close eye on the plan to see if plan changes are either required or desirable due to things like changes in the pension environment or a desire to evolve the plan. Such changes are considered on an annual cycle unless, for unforeseen reasons, decisions must be made sooner. In that case the SC will generally, at a minimum, communicate through its website at least 21 days before decision.
The SC continues to welcome ideas and input from stakeholders on ways to make our pension plan better. Click here for more information, or simply call us at 416-814-6584.