Protecting Our Funded Status

The funded ratio is a key indicator of the long-term financial health of the Plan.

The funded ratio is the measure of the value of assets relative to the pension obligations.

In 2018, our funded ratio increased by two percentage points to 96% on a smoothed basis, reflecting improvement for the sixth consecutive year. The improvement in the funded ratio in 2018 is attributable to the smoothing of strong investment gains from the prior years, together with member and employer contributions, partially offset by an increase in pension liabilities.

A goal of our Strategy is to be fully funded by 2025.

On a fair-value basis, the funded ratio declined by four percentage points from 101% to 97%, as the net return in 2018 was below the discount rate of 6%.

The discount rate is the interest rate used to determine the present value of pension benefit payments anticipated in the future, and minimum contribution rates. It has two parts: 1) the real discount rate before inflation, and 2) an assumption for inflation.

In our 2020 Strategy, OMERS set out an objective to reduce the Plan’s real discount rate from 4.25% to 4.0% by 2020, and continue to reduce it to 3.75% over time. Reducing the real discount rate mitigates the risk of future contribution rate increases and provides greater stability for future contribution rates and benefit levels.

We achieved the real discount rate target of 4.0% in 2017, three years ahead of schedule. At December 31, 2018, the real discount rate was unchanged at 4.0%.

The assumption for future inflation was 2.0% for both 2017 and 2018.

We will continue to decrease the real discount rate when investment results and liability experience are better than our long-term actuarial assumptions.

In 2018, the Sponsors Corporation (SC) continued the Comprehensive Plan Review, which began the year before with the objective of ensuring that the Plan is meaningful, affordable and sustainable for generations to come. This rigorous assessment of the challenges, which could impact the long-term health of the OMERS Plan, provides an ongoing opportunity for the SC Board to consider options for mitigating the longer-term risks on behalf of current and future members.

During the Comprehensive Plan Review, the SC undertook direct outreach with sponsors, unions, associations, employers and members through in-person forums, webcasts and electronic updates. Key issues were shared regarding the headwinds facing the Plan, the long-term financial implications of those realities, and possible options to address them were discussed. There is still more work ahead, as the assessment of Plan risk and sustainability is an ongoing process.

Several options were considered, including:

  • Replace inflation indexing with conditional indexing for future service.
  • Update the criteria for early retirement subsidies.
  • Integrate the pension formula with the new Year’s Additional Maximum Pensionable Earnings (YAMPE), introduced as part of the enhanced Canada Pension Plan (CPP), which came into effect in January 2019.
  • Make participation for non-full-time employees mandatory, with possible opt-out.
  • Eliminate the current 35-year cap for credited service.
  • Allow paramedics to negotiate normal retirement age 60 participation in the OMERS Pension Plans.

In 2018, the SC approved these last two items as changes to the Plan, effective January 1, 2021.

OMERS is committed to further deep analysis of membership trends and factors affecting the Plan, and building on the research conducted through the Comprehensive Plan Review. We continue to assess the broad range of challenges ahead.

The data and input collected through the Comprehensive Plan Review will equip the SC Board to continue in its efforts to address these challenges.

Contribution rates were unchanged in 2018 and will remain unchanged in 2019. The current 
average contribution rate paid by members is 10.7%, which is matched equally by employers.
* The CPP earnings limit in 2019. There are no changes to contribution rates in 2019.
2018 Member Contribution Rates Normal Retirement Age 65 Normal Retirement Age 60
On earnings up to $57,400* 9.0% 9.2%
On earnings above $57,400* 14.6% 15.8%