The Ontario Municipal Employee Retirement System (OMERS) is the 4th largest public pension plan in Canada with approximately 60 billion dollars under management. Although it is known as being one of the best run pensions in the country and doubtless has access to some of the best investment opportunities and managers available, it is still struggling to make up losses experienced in the 2000 and 2008 bear markets. Today like most pension funds, OMERS is running a deficit and is approximately 89% funded according to its website here.
An aging population that is living longer than ever before, is presenting unfavorable funding demographics in pretty much every pension in the world, and with 100-year lows in interest rates, low dividend yields and an ongoing secular bear market in stocks, the answers needed are more than just optimistic return hopes. The way back to sustainable plans includes lower benefit amounts, later retirement dates, less annual indexing and increased funding from employers and employees alike. Stakeholders trying to avert contribution hikes at OMERS have recently tabled proposals to lower benefit accruals, extend retirement dates and lower annual CPI indexing by 50%. These are all steps in the right direction although they will be hugely unpopular and hotly contested by union representatives; still facts must be faced eventually. One of the proposals aptly explains the rational for reforms as follows:
The grim economic picture facing Ontario and its citizen impacts on the affordability and sustainability of the current OMERS Plans. This is especially true when it is unlikely that current contribution levels can be reduced to normal cost levels for many years. Infact there is a real prospect that contributions may increase as set out in the 2013 projections.
Current members and their employers should be protected as much as possible against further contribution increases. If earnings of the OMERS plans in the next few years do not surpass on average the assumed rate of 6.5% further increases in contributions and reduced benefits may be required under SPDOS. To attempt to avoid such an occurrence it is proposed to reduce benefits accrued by members to the OMERS plans after December 31, 2015.