Dear OMERS Sponsors Corporation Chairs,
I write today to express my deep concerns with the specific details of proposed changes to my OMERS pension plan that will prospectively significantly impact my retirement plans. I would strongly urge you, in your capacity as Chairs, in tandem with all the representatives on the Sponsors Board, to not proceed with the implementation of the proposed changes to early retirement provisions.
At present, as an OMERS member, I can retire early without any reduction to my monthly pension or penalty if I have worked for 30 years or more; or have reached at least the ‘90 factor’ where the total of my age and my years of service in OMERS add up to 90. The ’30-n-out’ pension rule has been a critical element in my retirement planning and has provided certainty around when it would be to my advantage to depart the workplace for retirement.
Obviously, the ’30-n-out’ pension is also a ’90 factor’ pension for anyone in OMERS that works 35 years if they started at age 20 – when age 20 + 35 = 55 years of age and 35 years of service = 90. I also understand that OMERS is actively considering requiring plan members to wait until we are no more than 5 years away from the normal age of retirement of 65 (or at age 60 rather than 55) before they can apply for early retirement without any reduction.
In short, despite decades of service and contributions into the pension plan, no plan member would be able to retire before they reached the age of 60 without taking a reduction or penalty to their monthly pension.
That single change alone dramatically lowers the monthly amount of my pension once I retire or compels me to work well beyond the age I had contemplated retiring at.
Why is this necessary when in 2017, the funded ratio increased to 94%, marking the fifth year in a row of funded status improvement for OMERS members and a projected fully funded plan on a smoothed basis by 2025? Since 2015 OMERS net plan assets have grown to $95 billion – an increase of $18 billion in only two years. In fact, OMERS has generated $7.6 billion of net returns above the discount rate used to calculate the present value of future pension obligations.
Yet while interest rates in Canada are increasing, OMERS has decided to reduce the real discount rate used by the plan to 3.75% from the rate of 4.25% used in 2015. The real discount rate will have been reduced by 50 basis points in just ten years, resulting in an otherwise greater present value of future pension obligations.
My decision when to retire was determined in previous years in light of the contributions I made to OMERS and the benefits the plan had promised me.
Altering the early retirement provisions potentially for those that reached age 55 after January 1, 2021 and no longer are eligible for an unreduced pension until they otherwise reach their ‘90 factor’ or ‘30-n-out’ at age 60 is unfair. There must be a longer eligibility ‘runway’ that recognizes the legitimate expectations of OMERS members and no current OMERS member with 10 years or more of credited service should lose entitlement to an unreduced pension at age 55 if they will have reached their ‘90 factor’ or ‘30-n-out’ at age 60.
Other proposed changes in the OMERS Comprehensive Plan Review exercise will also impact me directly in terms of my retirement decisions.
I understand that OMERS is also considering replacing the guarantee of inflation indexing with a conditional indexing on future service – conditional on plan funded status, or only when OMERS is above 105% fully funded AND that indexation provided doesn’t cause the plan to drop below 105% fully funded.
The real value of my eventual OMERS monthly pension is critical to my sense of security and capacity to maintain my living standards in retirement. With greater uncertainty around the amount of my monthly pension, there is greater insecurity and fear of an inadequate pension.
I also understand that OMERS is also proposing changes to how the plan benefit accrual rates are calculated to integrate with the recent CPP enhancements. The CPP changes include a new definition of “Year’s Additional Maximum Pensionable Earnings” (YAMPE) that will be 107% of the YMPE in 2024 and 114% of the YMPE thereafter. At present, my pension benefit is calculated by multiplying my years of service by the accrual rate of 1.325% of earnings up to the current Year’s Maximum Pensionable Earnings (YMPE) of $55,900 and by 2.0% above that amount.
This proposed change to OMERS will result in a further 14% of my earnings calculated at the lower accrual rate – providing a lesser benefit accrual and eventually a lower monthly pension from OMERS. Many of my co-workers with earnings around the YMPE of $55,900 in 2018 may have about a 6.0% reduction in their OMERS pension from this one change alone.
As an OMERS member, I have for decades accepted a more modest income from my employment than others in my community because I valued the ability to defer a portion of my wages into a pension plan knowing that a decent and secure defined benefit pension would be critical for my planned retirement.
The proposed changes to my ability to reach an early unreduced retirement pension, and any related attempt to reduce OMERS’ current benefits put my planning for retirement at risk and in jeopardy. That simply isn’t fair or equitable. I would request all members of the OMERS Sponsors Board to do what is appropriate by voting to NOT support these proposed plan changes. I would request, as Chairs that you ensure this correspondence is shared with all board members.