1. Jack JonesSheila Vandenberk OMERS Sponsors CorporationOMERS Administration Corporation OSSTF/FEESO Leadership 2010 Conference August 2010

2.  OMERS Plan and Governance  Funded Position and Projections  History of Changes  Options Considered  Approved Changes  Contributions  Benefits  SPDOS  OAC Investment Strategy 2 Agenda

3.  Defined Benefit Pension Plan  Primary Plan  Supplementary Plan (Police, Fire, Paramedics)  Retirement Compensation Arrangement (RCA)  Jointly governed and funded by employers and members  Multi-employer plan – 928 employers  Membership – 400,077 members  290,573 active, inactive and deferred members  109,504 retired members  Represented by more than 40 unions and associations OMERS 3

4. OMERS Active Members Affiliation As at December 31, 2009 4

5.  OMERS Administration Corporation (OAC)  Administer OMERS Plan  Invest Plan assets  Perform actuarial valuations  OMERS Sponsors Corporation (SC)  Set contribution rates  Set benefit levels  Decide whether to file actuarial valuation  Set composition and compensation of both boards Dual Governance – Responsibilities 5

6. + = + As plan demographics change, there is more pressure on investment performance OMERS Pension Payments  30% is funded from contributions  70% is funded from investment income 6

7. The OMERS Return Total benefits paid out $81,900 $404,000 age 65 to 84 $67,400 spousal $200,000 annual inflation: 1.5% $941,400 $270,000 age 55 to 65 Contributions + interest over working life Pat retired with an unreduced pension at age 55  30 years of service  “Best five” earnings are $45,000

8.  Surplus of $82 million at end of 2007  Deficit of $0.3 billion at end of 2008  Contribution rates raised January 1, 2010 NRA 65 from 6.3% / 9.5% to 6.4% / 9.7% NRA 60 from 7.7% / 12.8% to 7.9% / 13.1%  Deficit of $1.5 billion at end of 2009 Funded Position of OMERS Primary Plan 8

9. ITA changed the rule for excess surplus for shared-cost plans like OMERS  During the excess surplus period in late 1990s, contributions (from both members and employers) had to stop when funded ratio was over 110%  Now contributions have to stop when the funded ratio is over 125% Income Tax Act Has Changed 9

10.  Contribution Holidays  Partial to full contribution holiday from 1998 to 2003  Benefit Improvements  Initial ad hoc top-up above the 70% contractual indexation; subsequent permanent change to 100% contractual indexation  Temporary early retirement window from 1998 to 2004  Permanent reduction of CPP offset from 0.7% of average 3-year YMPE to 0.675% of average 5-year YMPE  Permanent change to surviving spouse’s benefits from 60% to 66 2/3%  Establishment of reserves Past Surplus Management 10

11.  In 2008 with the downturn in global markets OMERS investments lost 15.3% or $8 billion  In 2009 with the economic recovery investment returns increased 10.6% or $4.4 billion  Five-year investment return: + 6.6% (2005 to 2009, including 2008 loss)  Not all losses are recognized right away – they are recognized over 5 years – this is called asset smoothing  At the end of 2009 there is still $5 billion to be recognized over the next few years. Why we have a deficit? #1. Investment Losses 11

12.  Actuarial assumptions reviewed periodically to ensure that the Plan costs reflect reality of the Plan  2009 study reviewed the assumption for future salary growth  Adjustments resulted in an increase in liability of approximately $0.5 billion - thus an increase in the underlying cost of the Plan.  2010 study is taking place this summer to review other assumptions, including the age at which members retire  An increase in liability of approximately $2 billion is already included in projections, and a further increase in the underlying cost of the Plan can be expected, pending completion of review.  Normal Costs continue to rise as population ages Why we have a deficit? #2. Actuarial Assumptions 12

13. Filing Actuarial Valuation  Ontario pension plans must file an actuarial valuation at least every three years  It is the previous year’s actuarial valuation that is filed  Filing triggers changes that take effect January 1 st of the next year  OMERS filed the 2008 valuation in 2009  Rates were increased January 1 st, 2010 OMERS SC Board had the following options: 1) 2009 valuationFile 2010Changes take effect January 1, 2011 2) 2010 valuationFile 2011Changes take effect January 1, 2012 Must file 2011 valuation if previous two are not filed: So if don’t file 2009 valuation or 2010 valuation, must file 2011 valuation Changes would take effect January 1, 2013 13

14.  Deficit is projected to grow to  $5 billion by the end of 2010  $8 billion by the end of 2011  $12 billion by the end of 2012  Reasons  Continued recognition of the 2008 loss  Changes to actuarial assumptions  Interest on deficit  Aging of Plan membership Where is the deficit heading? 14

15. Scenario2010201120122010 – 2012 Positive13.5% 13.8%13.6% TW Baseline6.5% Negative-0.4%0.4%0.7%0.2% The actuaries say there is roughly a 50% chance that the actual investment returns will fall between the Positive and the Negative scenarios. Scenarios - Short Term Investment Returns 15

16. Towers Watson Projections – Primary Plan 16

17. Towers Watson Projections – Primary Plan A Funding Target of 3% to 4% per side over the next few years is required 17

18. 18 Options  Increase contribution rates  Reduce future benefits  Adjust investment strategy  A combination of the above What can OMERS do about the deficit? 18

19.  Changes to contribution rates and benefits are called Specified Plan Changes  Proposed changes are tabled each year  SC must make decisions by end of June  Changes require a 2/3 majority of SC Changes to Contribution Rates and Benefits 19

20. 10 Proposals Put Forward for Consideration  3 multi-year approaches  Increase contributions and file 2009 valuation  Rescind cap on contributory earnings  NRA 60 for Police Civilians and Paramedics  2 RCA funding changes  Contributions during periods of reduced pay/hours 2010 Plan Change Proposals 20

21.  SC carefully considered all options  Decided to address growing deficit now rather than later  Multi-year approach with contributions and benefit changes phased in over a period of time  Impact less severe  Temporary changes until Plan returns to surplus  Manage the health and long- term viability of the Plan 2010 Plan Change Proposals

22.  Temporary Contribution Increases  Average increase of 2.9% per side phased in over 3 years 1.0% in January 2011 1.0% in January 2012 0.9% in January 2013  Overall this is a 30 – 40% increase in actual contributions  Temporary Benefit Changes  0.4% in benefit reduction for future service (after Jan 1, 2013) for members who terminate before early retirement eligibility: – Elimination of pre-retirement indexing and early retirement subsidies on termination – No change to benefits of current retirees or active members who stay in Plan until early retirement 2010 Approved Changes

23. Additional SC Decisions  File 2009 Valuation  Opt out of “Grow-In” rights  Grow-in would increase Plan liabilities by providing new benefits to terminated employees  Statement of Plan Design Objectives and Strategy  SPDOS will set out the framework for effective decision-making regarding the funding of the Plan

24. Contribution Rate Increase Example Increase in Contribution Rates

25. The table below shows the approximate impact of an average increase of 1% in the contribution rate for each side for sample earnings of $25,000, $40,000 and $70,000.  Net after-tax impact is less due to tax deductibility of contributions  Actual rates to be determined Illustration of Increase in Annual Contribution Per Side Contributory EarningsCurrent Annual Contributions Average Annual Increase Per Side NRA 65 $ Increase $25,000$1,600$250 $40,000$2,560$400 $70,000$5,232$700 25

26. Benefit Changes

27. Temporary Benefit Changes  Eliminate pre-retirement indexing and early retirement subsidies for members who terminate before retirement  Only impacts service accrued or earned after 2012  For NRA 65 members – only impacts those who terminate before 55  No change to benefit entitlements or pensions of current retirees, member survivors or active members who stay in the plan until early retirement  Reduces long-term liability to the Plan  Temporary until the Plan is back to full funding  More information and examples www.omers.comwww.omers.com

28. Grow-in Under New Pension Legislation

29.  A costly benefit OMERS does not currently have  All members whose employment is terminated by the employer without cause would be entitled to grow-in benefits if they met the “Rule of 55”at termination ( age + service = 55+)  Grow-in means the service the member would have received if he/she had not been terminated is taken into account to satisfy the eligibility for an unreduced pension.  SC has decided to opt out of this costly benefit 29

30. Statement of Plan Design Objectives and Strategy (SPDOS)

31. Purpose of SPDOS  Sets out the framework for effective decision-making regarding the funding of the Plan  Desired balance between competing funding objectives (e.g. equity, security of benefits, sustainability, affordability)  Objectives may be stated as a set of principles, guidelines or specific targets regarding the interaction of contribution and benefit changes  Objectives could also capture principles concerning establishment of a Reserve and discretionary filings 31

32. OMERS Funding Plan Process  OMERS Funding Plan Process is made up of 2 elements  OAC Funding Policy  SC Statement of Plan Design Objectives and Strategy (SPDOS)  SPDOS needs to address 3 fundamental questions  What is the SC Funding Target?  What are the Triggers requiring SC action?  What happens when a Trigger is activated? 32

33.  Equity  Sustainability  Affordability  Flexibility  Utilization of surplus  Retirement of unfunded liabilities  Establishing reserves  Key specified plan change priorities 33 SPDOS may address such matters as:

34. Investment Strategy

35. Total assets of $62.0 billion; net assets of $47.8 billion (as of December 31, 2009) 66% of the assets in Canada; 34% in foreign jurisdictions Invest in public markets (stocks and bonds) Invest in private markets (real estate, infrastructure, private equity) 35 OMERS Investments

36. 2009 Asset Mix Public Markets Private Markets Real Estate Private Equity Infrastructure (as at December 31, 2009) % 36

37. Create value through  Asset mix Shifting to private market investments to support long-term growth and moderate volatility of equity markets  Direct drive active management (from 80.8% at the end of 2009 to 90% by 2012)  Increased access to capital Includes working with other large international funds via a global strategic investment alliance  Growth in membership  Third-party fund management  Other growth initiatives Including additional voluntary contributions (AVCs – January 2011) OMERS Investment Strategy 37

38. OMERS Alternative Investments 38

39. SC decisions support health and long-term viability of the Plan – ensure sustainability Phased-in approach Temporary changes until Plan is fully funded Ongoing monitoring Develop strategy for future decisions (SPDOS) Consider growth options Summary 39

40. Questions?