The following is from 3888 Pres. Frank Ragmagnano in response to a question on the 3888 forum. I thought it may be of some interest to some. Special thanks to Frank for allowing it to be shared.
What might the impact of Covid-19 be on OMERS.
…it is too early to tell. I will speak about time lines and what options may be available.
I want to start out by saying I sit on the OMERS SC board not the AC board. The AC board is responsible for the administration of the plan which includes the investments. SC Board is responsible for plan design and contributions.
Stocks are down, correct that is roughly 45% of OMERS portfolio. You have Oxford our real estate arm which owns malls, hotels and office buildings. As you can imagine they would be down as well. Very difficult to value the worth of the property and what that will be months from now or years from now.
We also have OMERS Private Equity, various businesses all over the world and they would be down. For example I believe we own the 3rd largest theater chain in Europe, gas rest stops in Germany, etc…… Cash not coming in and what will the evaluation of the businesses be now and future?
Pensions will continue to be paid! During financial crisis liquidity always becomes an issue and we have been told that OMERS has and secured enough liquidity to manage the crisis. Having liquidity also helps in buying items that are artificially cheaper then they should be which can help with the investment set backs.
By Ontario regulations a pension plan must file a pension evaluation minimum every 3 years. When you file if you are not 100% funded you must have taken steps to be 100% funded with 15 years of the evaluation. That was the case in 2012 when contributions rates went up and small decline in termination benefit. We were on track to be fully funded by 2025. This may have to be adjusted but too soon to tell. We filed this year 2020 our 2019 pension plan evaluation. By current law we do not need to file another one until 2023 and it would be our 2022 evaluation. That allows you a little time to help with the evaluation of assets. You may own a building before Covid that was worth 500 million dollars. It is now worth 400 million for a 20% decline but a year from now worth 500 million again so you gained 20% that year. Depending on when you file has a large impact.
The other tool that OMERS uses is that is smooths the years returns over a 5 year period. That means that any gains are divided for the following 5 years. OMERS currently has gains coming through the system. The same is true with losses so they would be smoothed over a 5 year period.
While there are things in place and I believe OMERS is well positioned to deal with the crisis this is also once in a 100 year crisis. All pension plans in Canada are under the crisis. Their might have to be government assistance to help deal with this further. It is not necessary putting up money but easing regulations. That is risky as it could make pension plans not as secure.
Government could change the period to file from 3 years to 5, that could help if everything rebounds. Government could make the 15 years to be fully funded to 20, 25. Government can say you need to be 90% funded for 15 years and 100% after 25 years. We have some of the most conservative pension legislation in the world so there is some room for them to help if it is needed.
I was on the OMERS board when we dealt with the 2008 financial crisis, in fact it was my proposal that the board agreed with to handle the crisis. Was hoping to avoid another one but will use the experience gained through that to help with this.
Pensions are long term and we have a solid structure at OMERS. You would all be proud to see how the OMERS staff have adopted and are continuing to work hard in all our best interests.