The Municipal Employer Pension Centre of Ontario (MEPCO) is a non-profit corporation that provides expert advice and resources to AMO’s representatives on the OMERS Sponsors Corporation (SC) and Administration Corporation (AC) Boards.

Individual municipal governments have virtually no opportunity to directly influence decisions made by OMERS. Yet, an OMERS contribution rate change can have a major impact on local budgets. MEPCO provides the opportunity for municipal employers to pool resources and speak with one strong, well-informed invoice.

MEPCO shares its pension, actuarial and legal expertise with municipal employer representatives to OMERS. Through AMO’s SC and AC representatives, MEPCO brings the municipal perspective to OMERS-related decisions by:
 

• Providing advice, tools, professional actuarial and legal advice on plan design, funding, growth and other matters.
• Analyzing the impact of pension issues on municipal employers.
• Developing OMERS Specified Plan Change (SPC) proposals.
• Evaluating every SPC proposed by other Plan sponsors.
• Keeping MEPCO members informed of important OMERS developments by issuing updates and directly responding to inquiries.
• Participating in the selection process for AMO’s SC and AC representatives.
• Recruiting a MEPCO Board of Directors that includes a mix of public and private sector experts and municipal officials.

In 2006, the Ontario Government devolved itself from its central sponsorship role in OMERS and created a new and independent governance model. The OMERS Sponsors Corporation now determines Plan design and contribution rate changes and the OMERS Administration Corporation manages the Plan’s day to day operations including investment strategy, plan valuation and pension benefit administration. AMO created MEPCO to provide municipal employers with support, advocacy and resources on OMERS matters that is equivalent to the level of support provided by other OMERS sponsor organizations.

In 2014, the Sponsors Corporation approved a new Primary Plan Funding Management Strategy (FMS). The FMS describes what will happen to benefits and contributions as the Plan moves through periods of funding deficit and surplus and provides for a contribution rate cap and the establishment of a reserve fund. Municipal and other employer sponsors actively supported the development of the Primary Plan Funding Management Strategy (FMS).

MEPCO believes that the FMS is a major positive step forward for OMERS employers and employees in managing budgets and shares OMERS’ goal to ensure a sustainable, affordable and resilient pension plan that meets the needs of municipal employers and employees. The FMS reflects MEPCO’s focus on flexibility in OMERS benefits, funding and investment policy to meet sustainability challenges.

The Ontario Municipal Employees Retirement System (OMERS) represents close to 1,000 employers and more than 460,000 active members, retirees and survivors. The Plan’s long-term health is fundamental to the well-being of thousands of municipal employees.

Who has a say in how OMERS is governed?
OMERS is governed by the Sponsors Corporation (SC) and the Administration Corporation (AC). In 2006, the Government of Ontario devolved itself from its central sponsorship role in OMERS. The OMERS SC replaced the Province as Plan sponsor and the AC assumed the role of the existing OMERS Corporation.

The SC is responsible for Plan design. The SC Board is made up of seven employee and seven employer representatives. AMO has two representatives on the OMERS SC.

The AC is responsible for the Plan’s day-to-day operations, including determining investment strategy, Plan valuation and pension benefit administration. The AC Board is made up of an Independent Board Chair with seven employee and seven employer representatives. AMO has two representatives on the OMERS AC.

Working toward a sustainable OMERS Pension Plan
The adoption of the Funding Management Strategy was a major, positive step forward for OMERS employers and employees in managing budgets. We have made progress, but our work is far from complete. OMERS, like any comparable pension plan, will face more challenges in the future due to the volatility of global financial markets. MEPCO will continue to advocate changes that will return the Plan to full funding as soon as possible, so that it is stronger and healthier. A fully funded Plan will be better able to weather future challenges.

 

Administration Corporation (AC)
The OMERS Administration Corporation manages the Plan’s day to day operations including:

• Investment Strategy
• Plan valuation
• Pension benefit administration

The AC Board is made up of an Independent Board Chair with seven employee and seven employer representatives. AMO has two representatives on the OMERS AC.

Funding Management Strategy (FMS)
Approved in 2014, the Funding Management Strategy (FMS) describes what will happen to benefits and contributions as the Plan moves through periods of funding deficit and surplus. Municipal and other employer sponsors actively supported the development of the FMS.

MEPCO views it as a major step forward for OMERS employers and employees in managing budgets. It will have a positive impact on long-term sustainability by:

• Setting out a cap on contributions at a blended rate of 22.6%.
• Setting out a plan to set up and manage a reserve fund.

NRA 60
Many police officers, police cadets, firefighters and certain employees of police and firefighter associations have a Normal Retirement Age (NRA) of 60 years. The normal retirement pension is paid monthly, for life from Normal Retirement Age.

NRA 65
Most OMERS members have a Normal Retirement Age (NRA) of 65 years.

OMERS Act (Bill 206)
The Ontario Municipal Employees Retirement System Act, 2006 (OMERS Act), also referred to as Bill 206, established a new and independent governance model for OMERS with the creation of the Sponsors Corporation to replace the Ontario Government as Plan sponsor. The Act fundamentally changed AMO’s role in OMERS governance and administration by legislating AMO to appoint employer representatives to the Sponsors Corporation and Administration Corporation. The transfer of the Province’s governance role in OMERS to the Sponsors Corporation is referred to as devolution.  

OMERS Employer
Employers that are members of the OMERS Pension Plan are called OMERS Employers. Contributions to the OMERS Pension Plan are split equally between employer and employee.

OMERS Employee/Plan Member
Members of the OMERS Plan include active members (i.e. employees) who contribute to the OMERS Pension Plan as well as members who are not currently contributing to the Plan such as retired people receiving a monthly pension.

Pension Benefits Act
The Pension Benefits Act (PBA) is legislation that regulates pension plans in Ontario.

Retirement Compensation Arrangement (RCA)
The OMERS Retirement Compensation Arrangement provides benefits to members whose pension benefits exceed the limit set out in the Income Tax Act and Regulation (ITA).  The RCA is a separate arrangement from the OMERS Primary Plan with specific tax treatment.  

Specified Plan Change (SPC)
A Specified Plan Change (SPC) is defined by the OMERS Act, 2006 as:

• A change to benefits of any of the OMERS pension plans  
• A change to contribution rates for members or employers
• A change to or establishment of a reserve

SPC proposals are made to the Sponsors Corporation Board and require a two-thirds majority for approval. The SC Board can decide to move a rejected proposal to mediation/arbitration by a simple majority.

Sponsors Corporation (SC)
The Sponsors Corporation determines Plan design and is responsible for:

• Determining changes to benefits and contribution rates
• Setting compensation levels and appointment protocol for both the Administration Corporation and the Sponsors Corporation

The SC Board is made up of seven employee and seven employer representatives. AMO has two representatives on the OMERS SC.

Supplemental Plan for Police, Firefighters and Paramedics
The Supplemental Plan offers optional “top up” benefits in addition to the OMERS Primary Plan to members of the police sector, firefighters and paramedics.

YMPE
The Year’s Maximum Pensionable Earnings (YMPE) is the earnings limit defined under the Canada Pension Plan (CPP). Employers collect CPP contributions from employees up to this limit each year.
 

This document provides an update on 2012 Major Pension Issues as of August 9, 2012.
  MEPCO advocates for policy that:

• Promotes a sustainable and affordable OMERS Pension Plan over the long term, and
• Supports fair and workable OMERS governance.

Currently, indications suggest that many of Ontario’s public pension plans are in trouble, including OMERS. To reduce OMERS funding deficits, there are three options. Increase contributions (i.e. property taxes go up and employees pay more of their salaries into the pension fund), decrease benefits (until the deficit disappears), or a combination of contribution increases and benefit reductions.

It is difficult for municipalities to justify property tax increases to fund public pension plans, particularly when the same taxpayers may have private pensions that do not offer comparable benefits or no pension coverage at all. Last year, the one per cent increase in OMERS contributions required, very roughly, the collection of an additional $150 million in property taxes. Public pension funds should not undermine a municipality’s ability to deliver core government programs and services, and to invest in infrastructure. 

The 2012 provincial budget included proposed changes to public sector, jointlysponsored plans that would generally cap contributions and direct sponsors to make choices about reduced benefits for new employees.

The Government of Ontario began the consultation on a legislative framework in April 2012 and the OMERS Sponsors Corporation (SC) participated in several consultation meetings. The following components are to form the basis of the legislative framework:

• In case of a new funding deficit, plans would be required to reduce future or ancillary benefits before increasing contributions;
• In exceptional circumstances, limits to be set on the amount or value of benefit reductions before considering further contribution increases;
• Benefit reductions would affect future benefits, not those already accrued or those paid to current retirees;
• Employee and employer plan contributions to be matched to help reduce pension deficits (OMERS contributions are split equally between employees and
• employers whereas there are public pension plans where the employer pays 75 per cent of the contribution amount);
• When plan sponsors cannot agree on benefit reductions through negotiations, a new third party dispute resolution process would be invoked; and,
• The legislative provisions would be reviewed, once the provincial budget is balanced.

The Province’s decision to address the cost of public pensions through a cap on contribution rates and the reduction of future benefits during deficit periods was applauded by AMO, MEPCO and municipal governments.
 
In early August 2012, the government indicated that it hopes that sponsors of the various pension plans would come to a voluntary agreement on how to cap rates and reduce benefits given that each pension plan is somewhat unique. However, in the absence of a voluntary agreement among the sponsors of a pension plan, the province has indicated it will legislate in the early fall 2012.

Submission to Ontario’s Pension Investment Advisor

In May 2012, the Ontario Government appointed Bill Morneau as the Special Advisor – Broader Public Sector Pension Efficiencies. Mr. Morneau will lead the public consultation process on the changes introduced in the 2012 budget and provide the Minister of Finance with final recommendations by early-fall 2012. In July 2012, MEPCO made a submission to Mr. Morneau making clear its support of the existing voluntary pooling of public sector pension fund assets under Bill 206.

Should OMERS act as a “Consolidator” (where assets of smaller plans are pooled with OMERS assets), any changes to the governance structure should not limit OMERS’ sponsor representation and existing sponsors should decide on the scope of any expansion and pooling.
OMERS Sponsors Corporation (SC) and Administration Corporation (AC) Boards are subject to OMERS Corporate By-laws. By-law #4 and By-law #13, which govern the Boards’ composition and process for appointment, have been reviewed in 2012. MEPCO made a submission to the SC Board composed of these key points:

• AMO should continue to have representation on both the SC and AC Boards within the current weighted voting model.
• Management and non-union employees represent over 20 per cent of the employee membership. Accordingly, they should have an active voice in the Plan’s governance and the SC should pursue options to accomplish this.
• The current SC Board Co-Chair approach works well and is strongly supported. Based on plan membership, one of AMO’s representatives should consistently be a Co-Chair.
• The appointment processes for both Boards must be as timely as possible, and sponsors have a need to reflect established competency requirements in its nominee and from the sponsor’s perspectives that a sponsor’s nominee be seated as expeditiously as possible.

Bill 206 Review

The 2006 Ontario Municipal Employees Retirement System Act, also referred to as Bill 206, requires that the legislation be reviewed by 2012. The review is focused on the effectiveness and fairness of OMERS governance, including the effect of the current governance structure on:

• Representing the interests of OMERS employers, members and retirees
• Accountability to employers, members and retirees
• The level of fairness and the overall financial stability of OMERS.

The legislation does not allow for reconsideration of the principle of devolving responsibility for OMERS governance to plan sponsors or the decision to create supplemental plan options for fire and police.

The Honourable Kathleen Wynne, Ontario’s Minister of Municipal Affairs, announced the appointment of Tony Dean to undertake the review. MEPCO’s Board/AMO is working on a submission to Tony Dean that will advance the perspective of municipal employers. MEPCO will provide updates to members as the review process moves forward.

The stakeholder consultation process is set to be completed by early September and a report will be submitted to the Minister by the end of 2012, as required by legislation. 

You can learn more about the Review process and its terms of reference by visiting the Ministry of Municipal Affairs and Housing website.
 
MEPCO develops as well as evaluates other groups’ plan change proposals that go before the OMERS Sponsors Corporation (SC) Board every year. Using actuary and pension legal counsel, MEPCO assesses the impacts of these proposals on municipalities and the overall health of the OMERS Plan.

Eleven SPC proposals were submitted in 2012 and two were approved. One approved proposal set the contribution rate methodology for 2013 and the other put restrictions on the Retirement Compensation Arrangement. You can learn more by reading MEPCO’s July OMERS Update or visiting the OMERS Sponsors Corporation website, which also shows past years’ submissions and results.

Contribution Rate Allocation

In 2010, the OMERS Sponsors Corporation (SC) negotiated temporary measures designed to address the OMERS funding deficit which stood at $7.3 billion as of December 31, 2011. The Multi-dimensional Approach to Funding Deficit included increases to contribution rates for 2011, 2012 and 2013.

2011 contribution rates were established by adding one per cent to each of the four groups: Normal Retirement Age (NRA) 60 and 65 and earnings under and over the Yearly Maximum Pensionable Earnings (YMPE).

In 2012, the SC approved a new methodology for establishing future contribution rate allocation and set the rate allocation for 2013. The total contribution rate for 2013 is 21.2 per cent which is an increase from the 2012 rate of 19.4 per cent.
 

OMERS 2013 Primary Plan Contribution Rates Rates are per side (employee/employer)
Normal Retirement Age 65  Members	On earnings below the YMPE	9.0%
	On earnings above the YMPE	14.6%
Normal Retirement Age 60 Members	On earnings below the YMPE	9.3%
	On earnings above the YMPE	15.9%