MEPCO UPDATE
June 12, 2018

There appears to be some confusion about the OMERS Comprehensive Plan Review (CPR).  

The CPR is the first fundamental review of the OMERS Plan in 50 years.  The objective of the CPR, initiated in the fall of 2017, is to develop potential OMERS Plan design options to ensure that the Plan remains sustainable and affordable now and in the future for employers, employees and a new generations of plan members.  A lot has changed since the inception of the Plan, and anticipating and actively managing these developments is simply a pension stewardship best practice.  Every municipal employer and employee should welcome the review.  AMO does, and MEPCO supports the review as the responsible thing to do.
 
Ontario’s major public sector pension plans, such as Teachers and HOOPP, base inflation indexing decisions (conditional inflation protection) on plan health and affordability.  Why shouldn’t OMERS be doing that too?

Potential Plan design options are based on an assessment of key economic and Plan demographic developments that will impact the long-term viability of OMERS.  These developments are affecting all comparable, broader public sector (BPS) Ontario pension plans.  In fact, the Teachers’, HOOPP and CAAT plans have already made changes in order to ensure they can continue to provide meaningful benefits to their members.  It’s time for OMERS Plan sponsors to follow the lead of these plans to implement similar sustainability measures.  Measures such as conditional inflation protection, which ties indexing to a plans funded status, have led to full plan funding or surpluses in other comparable plans, enabling them to better manage future challenges for the benefit of their members.  AMO is calling on all plan sponsors to participate in the review constructively.

What You Need to Know

OMERS Plan funding and liability concerns are significant.  OMERS Plan members are living longer leading to higher normal Plan costs and increasing Plan liabilities.  While it is important that annual OMERS investment returns continue to meet and exceed established benchmarks, planned investment returns alone will not protect the plan from future economic storms.  
 
Plan changes under consideration would be on a prospective basis only and would, in some cases, be temporary.

Despite excellent returns and assets of $98 billion, the OMERS Plan is not fully funded.  It’s currently 94% funded.  That reflects steady improvement for five years in a row.  OMERS anticipates full Plan funding by 2025, so long as investment return targets are met and there are no significant market downturns, which is optimistic.  OMERS Plan liabilities on the other hand, are projected to be $217 billion by 2035.  Achieving full funding is essential to keep contributions affordable and benefits meaningful.  That should be a priority for both municipal employers and employees.

Workforce Trends Impact Sustainability

Service delivery trends resulting from automation, privatization and consolidation of separate back office functions are affecting the size of all workforces, including those of OMERS members.  Smaller workforces mean fewer contributing members to balance potential investment risks/losses and increased benefit costs.  

OMERS Plan Demographic Concerns Are Real  

The following OMERS charts confirm that OMERS Plan member longevity is increasing and the Plan is maturing (the ratio of active plan members to retirees, currently 1.9:1).  Increasing Plan costs will be borne by fewer active plan members, raising intergenerational equity issues.
   The following OMERS charts confirm that OMERS Plan member longevity is increasing and the Plan is maturing (the ratio of active plan members to retirees, currently 1.9:1).
Chart showing how Increasing Plan costs will be borne by fewer active plan members, raising intergenerational equity issues.

 
Higher Contribution Rates are not the answer to Plan sustainability

Increasing contribution rates is not a viable approach for municipal employers or employees, and the Plan member base for paying increased contributions is shrinking.  Given the inevitability of economic cycles, reliance on meeting annual investment return targets alone is a poor strategy for sustainability.   Plan Sponsors must consider implementing viable structural plan design changes on a temporary and prospective basis to manage Plan costs and secure sustainability.  A sustainable pension plan requires flexibility in plan design and a long term funding strategy that looks beyond annual investment returns. And that’s what the CPR is all about.  But to be very clear, at this time, no decisions have been made about Plan changes.
 
How does conditional inflation protection work?

For pension credit earned after a certain date (change is prospective only), the amount of inflation protection (indexing) is conditional based on the plan's funding status.