The Ontario Municipal Employees Retirement System sponsors corporation board is considering two plan design changes: the introduction of shared-risk indexing and the expansion of pension coverage to non full-time workers.
On the shared-risk indexing front, the sponsors corporation board is looking at potentially reducing future inflation increases on benefits earned after Dec. 31, 2022.
As a first line of defence, the OMERS is building a reserve. If at any time the reserve isn’t sufficient, the sponsors corporation board will consider reducing inflation increases. This change would only impact plan members retiring after Dec. 31, 2022.
Plan maturity is a driving force behind this change, according to the OMERS website. For instance, the plan used to have seven active members for each retiree and now has two retirees for every active member. Soon, the ratio will be one to one.
“Defined benefit pension plans work because the risks related to funding our secured retirement are shared among OMERS stakeholders, mainly our members and our employers and across generations,” said Michael Rolland, chief executive officer of the OMERS sponsors corporation, during the OMERS’ annual meeting webcast. “As our active to retired member ratio decreases, that responsibility is shared by relatively few active members. This puts a bigger burden on future generations. Plan maturity also reduces the plans ability to absorb shocks.”
Shared-risk indexing would allow the OMERs to prepare for the unknown without raising contributions, added the website, noting that, in the event of an economic shock, shared-risk indexing would spread the weight of supporting the plan over more members and more time.
“If an economic shock similar to 2008-09 were to occur in 2045, the impact on active members would be double what it was back then, due to plan maturity,” it said. “This is because the growth in what we owe (our pension obligations) will significantly outpace the growth in our active membership.”
In the webcast, Rolland highlighted that shared-risk indexing has already been adopted by other plans and noted it’s aimed at improving long-term sustainability and ensuring equity across all generations.
The OMERS is also considering removing eligibility rules so that employees who aren’t full time can join the plan at any time after Dec. 31, 2022.
“More and more of the workforce is now made up of non full-time workers, including those that will spend a career in roles that are non full time,” Rolland said. “In simple terms, the planned change under discussion is to remove the current eligibility rules so that all non full-time employees, even those that are currently not eligible, can elect to join the OMERS plan at any time.”
The OMERS sponsors corporation board will be making its final decision on shared-risk indexation and expansion to workers who aren’t full time in June 2020.