As part of a comprehensive plan review, the Ontario Municipal Employees Retirement System is looking at a number of changes, including to indexing provisions.
While a plan executive is offering a more nuanced version of the issue, the Canadian Union of Public Employees union is sounding the alarm about possible changes.
According to CUPE Ontario president Fred Hahn, OMERS has been doing well, with returns exceeding expectations. He says that after the 2008 recession, plan sponsors and staff worked hard on a strategy to improve the plan’s health. OMERS covers almost 120,000 CUPE members in Ontario, according to Hahn.
“It included some adjustments to some benefits for some plan members, and it included increased contributions for all plan members, so that means employers and plan members,” he says of previous efforts to boost the plan.
“Our folks from there were more than happy to make those additional contributions, because they understood it was important to protect their plan. . . . OMERS, in terms of its plan to come back to balance, is so far ahead of schedule [that] not only has it increased its funded status, it’s now at 94 per cent. But this year, [it] was in such a strong position that it was also able to address its discount rate. It was able to bring down the discount rate by 20 basis points, again well ahead of schedule.”
Given those improvements, the union isn’t happy about possible changes to indexing.
“Our position in relation to these kinds of changes has been one where we said we don’t buy, we do not believe that when the plan is doing well, when it is in a strong position, when it is quickly coming back to balance, when it has enacted a plan that is working ahead of schedule, now is not the time to actually remove a benefit that is so incredibly important to plan members like indexing against inflation,” says Hahn.
Paul Harrietha, chief executive officer of OMERS’ sponsors corporation, takes issue with the idea that the plan is de-indexing benefits. The plan, he says, is talking about conditional indexing and not completely removing the inflationary provision.
“It’s a nuance, but it’s an important one. De-indexing says we’re going to eliminate indexing, you’re not going to get it. Conditional indexing is predicated on the assumption that we’re going to maximize the indexing that we provide at any given time,” says Harrietha.
“Basically when you manage a plan like ours, you have two levers currently. One is you either cut benefits or increase cost if the plan suffers financially,” he adds.
“All conditional indexing does on a forward-looking basis is just give you one more lever that serves as a bit of a safety valve if the plan gets into financial trouble. It just allows you to manage the funding and contributions of the plan while the plan gets healthy again. We’ve only looked at it as a risk mitigation strategy that’s in the best interests of all of the members, both current and retired, so that we ensure that the plan remains financially healthy. But then we’re able to manage the contribution and funding rates at the same time so that we don’t have to keep going back to people and asking to pony up in the short term to cover losses potentially.”
Harrietha says the plan’s modelling indicates that if it were to adopt a conditional approach, it could anticipate providing indexing of about 85 per cent of what members would have gotten had it made no changes.
“In terms of other options, and I don’t mean to be flippant about this . . . everything was on the table. On the table was in direct consultation with all of the sponsors, including CUPE — who has two members on our board — to say: Is there a better way to deliver the pension promise? We looked at everything from flat accrual rates given the new CPP that’s coming in that would actually have enhanced benefits for lower-paid members’ lifetime pensions. We’ve looked at the conditional indexing component, we’re looking at service caps, we’re looking at revised early retirement benefits that can be perceived as a positive, we’re looking at expanding coverage potentially for all part-time employees in the sector,” he says.
This month, the board will consider options that would go to a vote in November.
“If the board accepts options in June, that’s all they’re doing,” says Harrietha.
“They’re suggesting these are the options that are meaningful at this time and that they would then socialize those options with our key stakeholders, sponsors, employers, unions and members over a four-month engagement plan. And then we will take that data back and in November, assuming there are any options approved in June, the board would at that time determine if they would vote for permanent changes under the plan.”
Harrietha, who notes a two-thirds vote would be necessary in November to pass any changes, says there would be a transition period. Any changes would be unlikely to take effect before January 2021, he adds, noting they would be prospective and therefore not affect benefits earned to date.
“Again, there’s no desire to disadvantage the members. It’s really just a matter of ensuring that the plan remains sustainable and meaningful and affordable over the time frames,” he says.