June 6, 2017

At its recent meeting, the MEPCO Board was updated on key OMERS Plan design areas currently being considered by the OMERS Sponsors Corporation (SC) Board: the Modified Inflation Indexing (MI²) proposal and OMERS Specified Plan Changes (SPCs) being assessed in 2017.

MEPCO Board Supports Indexation Proposal

What is being proposed?

Modified Inflation Indexing (MI²) would give OMERS the option to change future indexation levels, if necessary, in the event of a major market downturn. If approved, MI² would apply only to benefits earned after the Plan is amended, with no impact on benefits already accrued. Right now, benefits are indexed at 100% the rate of inflation. MI² does not decrease pensions. Instead, pensions would increase at a slower rate for a period of time, until full indexation could be restored.

Why is MEPCO supporting MI²?

Put simply, MI² would improve OMERS Plan sustainability and affordability for both employers and employees. As is the case with many pension plans, the number of retired members is increasing. At the same time, global financial markets are not predictable and an adverse economic event could occur at any time (see attached chart). Each of these challenges has significant cost impacts; however, these factors taken together could have a devastating result for the stability of everyone’s contributions and the security of Plan benefits. Already, pension contributions account for about 18% of combined employee/employer costs (9% each).

The OMERS Plan is in a deficit position and OMERS projects a return to full funding by 2025, as long as annual investment return benchmarks are met and there are no benefit changes. Recent experience has shown that it is difficult to predict global economic performance over a decade. Reliance on investment returns alone is risky.

Predictably, perspectives at the SC Board on the need for MI² are wide ranging, with some sponsors seeing MI² as an unnecessary "take-a-way," while others request more information to assess MI² operation. As with all Specified Plan Changes (SPCs), the proposal needs support from at least two-thirds of the Board to pass. MEPCO views the MI² as a safety valve, as a balance to investment risk and as a key initiative to address the issue of intergenerational equity in plan funding responsibilities.

Status of 2017 OMERS Proposed SPCs

In the 2017 OMERS Specified Plan Change cycle, the SC Board is considering four proposed plan change proposals:
  1. time restrictions on selecting the commuted value of a pension entitlement option for plan members whose employment ends before eligibility for an early retirement pension and on service buy backs, for members who rejoin OMERS after taking a commuted value;
  2. revisions to pension commencement options for members with dual membership¹ to address circumstances where a Plan member remains employed by an OMERS employer, while drawing a significant OMERS pension;
  3. enabling employers to suspend OMERS Plan participation for employees who live and work outside of Canada, to address tax complications; and
  4. allowing employers to offer NRA 60 benefits to paramedics, who are not designated police officers or firefighters, subject to consultation with OMERS Management.
The first three SPC proposals will be voted on at the June SC Board meeting. The fourth proposal will be considered by the end of 2017. As municipal employers know, the Ontario Professional Fire Fighters Association and the Ontario Government have been looking at paramedics being part of fire services, which could have implications beyond the service delivery/accountability matters.

The SC is continuing consultation on the MI² proposal and Plan membership requirements for non-full-time employees, with decisions on these proposals anticipated in the 2018 SPC cycle. For further information, please visit OMERS SC Plan Changes.
¹Dual membership occurs when a member has more than one employment relationship with OMERS employers (e.g. two part-time jobs at different municipalities.