Frequently Asked Questions
About the Plan
A pension plan is an important financial asset that can play a significant role in its members’ long-term financial security. Plan members and/or their employers make contributions to a pool of invested funds that, along with the earnings generated from those investments, will provide members with income for their retirement.
Determining the benefit amount members will receive in retirement depends on the type of plan. There are two main types of retirement plans – defined benefit and defined contribution.
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.
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 Plan members can expect a secure and stable income for life.
Yes. As we continue to assess the Plan’s long-term financial sustainability, we are focused on strengthening and protecting its resilience against potential risks on the horizon.
OMERS uses the average of the CPI for the 12-month period ending in October and compares it to the average for the same period the previous year. The percentage increase determines the increase for pensions in pay, which take effect on January of the following year.
OMERS method of calculating the annual inflation increase is consistent with the method used by the Canada Pension Plan (CPP), except OMERS rounds to two decimal places, while CPP rounds to one decimal place.
No, members contribute to the plan a set percentage of their contributory earnings as determined by the Sponsors Corporation (SC). Member contributions are matched by employer contributions.
The OMERS plan does not permit for additional contributions to increase a pension. Members, can, however, elect to make Additional Voluntary Contributions as an additional retirement savings amount to their OMERS Pension.
This change is effective January 1, 2023 and does not affect accrued benefits earned before that date. If you retired before December 31, 2022 or terminated employment with your OMERS employer before December 31, 2022 and elected to keep your deferred pension in the Plan, this change will not affect you.
For benefits earned on or after January 1, 2023, the decision to reduce the amount added for inflation will be based on the Sponsors Corporation (SC) Board’s annual assessment of the Plan’s health. Any change to inflation protection requires a two-thirds (2/3) vote of the SC Board.
It is important to remember that even if the Shared Risk Indexing (SRI) lever is used, pension payments will never go down. Read more about Shared Risk Indexing here.
About Plan Funding
While the funded status of the Plan today would be favourable, the Plan’s long-term funding would be too reliant on investment earnings potentially requiring younger members to pay higher contribution levels for the same benefits and/or receive lower benefits.
This means that the present value of pension liabilities accrued by members of the Plan exceed the assets available to provide for those benefits. In this situation, the Sponsors Corporation may look at a variety of options available to address this shortfall.
The funded ratio is the relationship of a pension plan's assets to its liabilities.
OMERS funded status on a smoothed basis was 95% in 2022, a decrease from its 2021 level of 97%. The funded ratio is an indicator of the long-term financial health of the Plan.
OMERS continually assesses the value of its assets against an estimate of its pension liabilities to members and carefully monitors its funded status by conducting a comprehensive actuarial Plan valuation every year. As part of the plan valuation, OMERS pension liabilities are carefully mapped out for years into the future -- for all plan members.
OMERS may serve a single plan member for 70 years or even more – from the time they begin employment, throughout their career, for their life in retirement and for their eligible spouse – so it is critical to carefully assess projected liabilities to our members over the long-term.
Additional Voluntary Contributions (AVCs) are optional members' retirement savings. While AVCs are invested in the OMERS Fund, the actuarial deficit does not affect AVC accounts. The actuarial deficit is related to the defined (DB) component of the OMERS Plan.
OMERS must have sufficient assets to meet its long-term liabilities to members. The OMERS Primary Pension Plan is funded by equal member and employer contributions, as well as investment earnings generated by our global and diverse portfolio of assets. The plan is regularly assessed by an independent actuarial firm to determine the Plan’s health. Based on that assessment, OMERS Sponsors Corporation will make decisions on how to handle a plan surplus or deficit. Read more about how the OMERS Plans are funded.
When the value of a defined benefit (DB) pension plan’s assets is worth more than its estimate of pension liabilities to its members, the plan is considered to be in surplus.
On the other hand, when a plan’s estimate of pension liabilities is greater than the value of its assets, the plan is considered to be in deficit.
Over time, DB plans such as OMERS will cycle through periods of both surplus and deficit.
Full funding means that a plan’s assets equal or exceed its liabilities.
What laws and principles support OMERS prudent management of its funded status?
Under Ontario law, OMERS must file a detailed actuarial valuation at least once every three years with our regulator, the Financial Services Regulatory Authority (FSRA).
Pension plans must take action to address any deficits identified in the actuarial valuation.
OMERS reports its assets on both a “smoothed” (5-year) and market-value basis. The smoothed value of assets is used for the regulatory funding valuation reporting, while the market value is used in financial statement reporting.
Smoothing is a method to spread from any single year the actual investment return above or below the assumed actuarial investment return over a longer period of time.
Smoothing of assets buffers the pension plan from having to make sudden drastic changes to contribution rates or benefits because of significant investment gains or losses in any one year.
Many economic factors - including volatility in financial markets, persistently low interest rates, and capital flows into alternative asset classes - present risks that impact the ability of our investment teams to generate investment returns that meet or exceed the discount rate of the Primary Plan. Demographic factors include unanticipated increases in life expectancy, trends in retirement and future membership levels. Over time, these risk factors can change, affecting the assumptions used to determine our actuarial liabilities, potentially changing our funded status.