FTR Now

Proposed Changes to OMERS Target Emergency Services Employees and High Income Earners

FTR Now

Proposed Changes to OMERS Target Emergency Services Employees and High Income Earners

Date: May 9, 2011

On May 4, 2011, the OMERS Sponsors Corporation (“SC”) made public seven proposed changes to the OMERS pension plans. The proposals have been put forward by various individual SC members in connection with the SC’s annual review of the OMERS pension plans. There are two main objectives: (1) improving the funded position of the top-up vehicle (otherwise known as the Retirement Compensation Arrangement, or “RCA”) that provides pension benefits on only the portion of earnings that exceed a certain level (presently about $143,912); and (2) improving pension benefits and also increasing access to improved pension benefits for emergency services employees. This FTR Now discusses the seven proposed changes as well as their potential implications for OMERS participating employers.

BACKGROUND

Every year the SC undertakes a process during which specified changes to the OMERS pension plans (changes which could result in a change to benefits, contribution rates or reserves) are proposed, considered and voted on. To be approved, specified changes must follow a formal process and protocol outlined in By-Law #12. This specified change process commences each January and is completed at the end of each June. For any proposed specified change to pass it must be approved by a two-thirds majority of SC member votes. If this vote threshold is not attained then the proposal fails and will have no effect.

PROPOSED CHANGES

Below is a brief discussion of the proposed changes.

RCA FUNDING

Three of the seven proposed changes involve making RCA funding enhancements, to reduce the existing RCA funding deficiency. The first two of these proposals (proposals #01-11 and #02-11) call for a larger proportion of member and employer contributions to be allocated to the RCA. These two proposals take different approaches for determining the amount to be allocated to the RCA. In both cases the stated intent is to leave overall OMERS contribution rates the same. Since these proposals do not provide for increases in OMERS contributions, an increase in the amounts allocated to the RCA would be achieved by reducing allocations to the OMERS Primary Plan. Thus, the OMERS Primary Plan would bear the cost of improvements to RCA funding.

The third proposal (proposal #03-11) provides for enhanced RCA funding by increasing RCA based contribution rates. In other words, this proposal would increase contribution rates but only on those earnings that exceed the level above which benefits are provided under the RCA. Since the RCA applies only to members who earn incomes over and above the Income Tax Act (Canada) maximum retirement benefit limit (equal to about $143,912, based on the existing OMERS’ benefit formula), this proposed change would require increased contributions from members who earn incomes above this amount, and their respective employers.

EMERGENCY SERVICES BENEFITS AND COSTS

The remaining four proposed changes target improvements to benefits and access to improved benefits for emergency services employees.

NRA 60 for Police Civilians and Paramedics

Proposal #04-11 would make normal retirement age (“NRA”) 60 benefits within the OMERS Primary Plan accessible to police civilians. Along similar lines, proposal #05-11 would make NRA 60 benefits accessible to paramedics. At present, NRA 60 benefits are limited to police officers and firefighters; police civilians and paramedics qualify only for NRA 65 benefits. Given that NRA 60 benefits are, at least at present, more costly than NRA 65 benefits, providing police civilians and paramedics with access to these benefits would inevitably increase employer costs. Also, since NRA 60 benefits would facilitate earlier retirements, police civilian and paramedic access to these benefits would probably result in earlier employee departures and require that employers find replacement workers at points earlier than they would otherwise.

Reduced Contribution Rates for Supplemental Plan Benefits

OMERS Supplemental Plan benefits have been available to the emergency services sector since July 1, 2008. OMERS Supplemental Plan benefits, and the rules governing access were discussed in our FTR Now dated March 5, 2008.

Notwithstanding that almost three years have passed since its introduction, the author’s understanding is that there are no emergency services groups presently participating in the Supplemental Plan. Given recent economic turmoil, municipal employers and, no doubt, employees have been under financial pressure over this same period. It is speculated that the lack of take-up on the OMERS Supplemental Plan is due to existing high costs both under the OMERS Primary Plan and the OMERS Supplemental Plan. Proposal #06-11 attempts to address this cost issue and make Supplemental Plan benefits more accessible by reducing related contribution rates. Reduced contribution costs could generate renewed interest in Supplemental Plan benefits and if this translates into employee groups gaining access to these benefits, it would result in an overall increase in costs to participating employers.

Changes to NRA 60 and NRA 65 Contribution Rates

Proposal #07-11 provides for an adjustment to the blending of contribution rates between NRA 60 and NRA 65 benefits. While the proposal does not say so explicitly, it is clear that the intent is to have NRA 60 contribution rates lowered. To ensure that contributions to the OMERS Primary Plan continue to be sufficient, this change would most likely also require that NRA 65 contribution rates be increased. Thus, proposal #07-11 could lower the OMERS contribution costs associated with police officers and firefighters, but increase costs in respect of other OMERS members.

NEXT STEPS

Each of the above proposals can be amended by the member(s) who originally tabled them until such time as they are brought forward to be voted on. Voting is expected to take place on one or both of the SC meetings that have been scheduled for May 26, and June 28, 2011, and so any of these changes could be approved within a matter of weeks. It is anticipated that many of the above proposed changes will be controversial. The proposals potentially have significant implications for OMERS participating employers and their employees. Employers should immediately consider their potential effect and notify the SC of any concerns prior to May 26th.

Please contact Jordan N. Fremont at 416.864.7228 or your regular Hicks Morley lawyer if you would like assistance with understanding the potential implications of the proposed changes, and with communicating any concerns to the SC.


The articles in this Client Update provide general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©