New Enhancements to OMERS Benefits – What Employers Need to Know
Date: November 29, 2018
Recently approved pension changes to the Ontario Municipal Employees Retirement System (OMERS) may increase employer pension costs and impact workforce management.
The OMERS Sponsors Corporation (OMERS SC) recently completed a Comprehensive Plan Review which involved consideration of several proposed changes to the plan design and benefits. On November 15th, the OMERS SC Board of Directors voted to approve the following two proposed changes:
- Eliminate the 35-year limit for credited service; and
- Allow paramedics to negotiate Normal Retirement Age (NRA) 60 participation.
Although a timeline for implementation has not yet been established, OMERS SC has indicated that the changes are unlikely to be adopted before January 1, 2021.
This FTR Now describes the approved changes and identifies cost and other factors that OMERS participating employers should prepare for.
Elimination of 35-year Service Limit
Currently, OMERS limits credited service to 35 years. Credited service is one of the factors that determines the amount of pension benefit that a member will receive once they retire and begin receiving a pension from OMERS. As a result, employees participating in OMERS currently cease accruing credited service upon reaching 35 years of service. The OMERS employee and employer contributions also cease at this time.
In general, once the 35-year limit is eliminated, members who continue in employment after reaching 35 years of service will continue to accrue credited service in OMERS and will be required to continue making pension contributions. Employers will similarly need to continue making contributions to OMERS in respect of these employees. However, details are still being finalized. For example, a decision has not yet been made regarding whether pension accrual will resume for members who reached the 35-year limit and had their credited service accruals and corresponding contributions suspended prior to the effective date for this change.
Contribution costs for older and long-service workers are generally greater than those for younger and shorter service workers (as senior employees are also usually earning higher wages and salary). As a result, once the 35-year limit is removed employers may find that there is an overall increase in labour costs if a greater number of workers choose to continue in employment after accumulating 35 years of service, and as pension contributions will continue to be required in respect of these workers. Delayed retirements based on the opportunity to accrue further credited service could also impact employers’ succession planning efforts. At least in the short term, this change could have a negative impact on the ability of employers to hire or promote younger workers.
NRA 60 for Paramedics
Most members of OMERS accrue pension benefits based on a NRA of 65. Exceptionally, the option to accrue an OMERS pension on the basis of NRA 60 is presently available to firefighters and certain police positions. Paramedics have historically only had the option to earn a pension on the basis of NRA 65, but there has been a long time effort on the part of employee groups to seek the NRA 60 option for paramedics as well.
With the approval of the NRA 60 option for paramedics, it is expected that the unions representing paramedics will seek this benefit through collective bargaining.
Before agreeing to such a proposal, OMERS participating employers should consider the following issues:
- Adopting NRA 60 for paramedics will likely require that both employees and employers pay a higher contribution rate. Whereas the current contribution rates for NRA 65 members are 9.0%*/14.6%**, current contribution rates for NRA 60 members are 9.2%*/15.8%**. Employers should therefore prepare projections based on the impact that a move to NRA 60 is likely to have on costs.
- An adjustment will also be made to the credited service that a member has already accrued at the time of conversion, which could result in up to a 25% reduction in the value of accrued benefits. Members whose NRA changes from 65 to 60 will have the option to buy none, some or all of the service adjustment applied to their credited service. Employers will likely receive requests to assist with these buy-back costs during the course of collective agreement negotiations regarding the NRA 60 benefit. Employers should not agree to such a request without first understanding the potential buy-back costs.
- It is possible that employers who reach an agreement with their paramedic employees on conversions to NRA 60 will see an increase in retirements at or around age 60 as employees take advantage of their adjusted pension benefits. Employers should consider the potential impact on their workforce planning.
Additional details from OMERS regarding the implementation of these changes are expected, but in the meantime participating employers will want to start considering how these changes could impact their workplace and be prepared to address these proposals during bargaining.
Should you have any questions or require further information, please contact Jordan Fremont at 416.864.7228, Natasha Monkman at 416.864.7302, Alyson Frankie at 416.864.7019, or any member of our Pension, Benefits and Executive Compensation group.
* on earnings up to the Year’s Maximum Pensionable Earnings (YMPE).
** on earnings above the YMPE.
The article in this client update provides 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. ©