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Pension Basics

Understanding Defined Benefit vs. Defined Contribution Pension Plans

A pension plan is an important financial asset that can play a significant role in members’ long-term financial security. Generally, pension plan members and/or their employers make contributions to a pool of funds that are invested and that, along with the earnings generated from those investments, will provide members with income for their retirement.

Determining the benefit amount a member will receive in retirement depends on the type of plan. There are two main types of pension plans: defined benefit and defined contribution.

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Defined Benefit

In a defined benefit plan, members can expect a predictable monthly income in retirement. Contributions are made to a pool of invested funds which are set aside to pay for promised benefits.

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Defined Contribution

In a defined contribution plan, the future benefit can vary because it is impacted by the returns earned by the investment pool. What is only defined in this type of plan is the amount of contributions that will be put into the plan.

OMERS offers a defined benefit plan to its members. In return for regular contributions that are matched by their employers, and the investment returns of the Planmembers can expect a secure and stable income for life.

To better understand the differences between a traditional defined benefit plan, defined contribution plan and the OMERS Defined Benefit Plan, please see the table below.

Traditional Defined Benefit (Single Employer Pension Plan)

Who contributes

Employers (but some plans also require member contributions)

Contribution requirements

Employer contributions are dependent on the financial health of the plan and can change from year to year

Who assumes investment risk to provide income in retirement

The employer

Level of contributions affects the amount of benefits provided under the Plan

No

Amount of retirement income

Predicable, based on a pension formula based on earnings and years of service

Predictable monthly retirement paid for life

Yes

Survivor benefits provided

Yes

Participation reduces personal RRSP room

Yes

The OMERS Plan (Jointly Sponsored Pension Plan, JSPP)

Who contributes

Contributions are made equally by members and employers

Contribution requirements

Can change depending on the financial health of the Plan

Who assumes investment risk to provide income in retirement

Members and employers

Level of contributions affects the amount of benefits provided under the Plan

No

Amount of retirement income

Predictable, based on a pension formula based on earnings and years of service

Predictable monthly retirement paid for life

Yes

Survivor benefits provided

Yes

Participation reduces personal RRSP room

Yes

Traditional Defined Contribution

Who contributes

Members contribute, with employers matching contributions

Contribution requirements

Contributions are very stable as they are established and defined in advance

Who assumes investment risk to provide income in retirement

The member

Level of contributions affects the amount of benefits provided under the Plan

Yes

Amount of retirement income

Unknown until the date of retirement

Predictable monthly retirement paid for life

No

Survivor benefits provided

No

Participation reduces personal RRSP room

Yes

Traditional Defined Benefit (Single Employer Pension Plan)

The OMERS Plan (Jointly Sponsored Pension Plan, JSPP)

Traditional Defined Contribution

Who contributes

Employers (but some plans also require member contributions)

Contributions are made equally by members and employers

Members contribute, with employers matching contributions

Contribution requirements

Employer contributions are dependent on the financial health of the plan and can change from year to year

Can change depending on the financial health of the Plan

Contributions are very stable as they are established and defined in advance

Who assumes investment risk to provide income in retirement

The employer

Members and employers

The member

Level of contributions affects the amount of benefits provided under the Plan

No

No

Yes

Amount of retirement income

Predicable, based on a pension formula based on earnings and years of service

Predictable, based on a pension formula based on earnings and years of service

Unknown until the date of retirement

Predictable monthly retirement paid for life

Yes

Yes

No

Survivor benefits provided

Yes

Yes

No

Participation reduces personal RRSP room

Yes

Yes

Yes


The OMERS Primary Plan is governed by the following legislation:

OMERS Act, 2006

Regulated by the Financial Services Regulatory Authority of Ontario (FSRA)

Establishes that OMERS is jointly sponsored, governed and funded by members and employers

Sets out terms and conditions for pension plans

Sets out the objects and powers of the Administration Corporation (AC) and the Sponsors Corporation (SC)
Learn more

Establishes minimum standards for funding and benefits

Establishes certain parameters for the OMERS Plans such as participation and contributions

Notice and filing requirements for plan amendments

Standard of care for plan administrators

Establishes rules for investment of plan assets

Income Tax Act, Canada (ITA)

Regulated by the Financial Services Regulatory Authority of Ontario (FSRA)

Regulated by the Canada Revenue Agency (CRA)

Sets out terms and conditions for pension plans

Establishes rules that are intended to establish a maximum on the type and amount of benefits that can be paid from a registered pension plan

Establishes minimum standards for funding and benefits

Establishes maximum standards for funding (i.e., contribution limits)

Notice and filing requirements for plan amendments

Establishes rules for investment of plan assets

Standard of care for plan administrators

Establishes rules for investment of plan assets

Pension Benefits Act, Ontario (PBA)

OMERS Act, 2006

Income Tax Act, Canada (ITA)

Regulated by the Financial Services Regulatory Authority of Ontario (FSRA)

Establishes that OMERS is jointly sponsored, governed and funded by members and employers

Regulated by the Canada Revenue Agency (CRA)

Sets out terms and conditions for pension plans

Sets out the objects and powers of the Administration Corporation (AC) and the Sponsors Corporation (SC)
Learn more

Establishes rules that are intended to establish a maximum on the type and amount of benefits that can be paid from a registered pension plan

Establishes minimum standards for funding and benefits

Establishes certain parameters for the OMERS Plans such as participation and contributions

Establishes maximum standards for funding (i.e., contribution limits)

Notice and filing requirements for plan amendments

Establishes rules for investment of plan assets

Standard of care for plan administrators

Establishes rules for investment of plan assets