Rate of Return Examples

Introduction

The following examples show how the rate of return for the OMERS Primary Pension Plan is generally applied to a member's AVC account.

Example 1 shows how the rate of return is applied to the AVC account of an active member.

Examples 2 and 3 show differences in how the rate of return is applied when a member retires or terminates employment and elects to withdraw his or her entire AVC account balance. Specifically, these show differences in the applicable rate of return depending on whether benefit option documents are received by OMERS before or after the rate determination date (around March 1).

For more details, and for definitions of the “annual rate of return,” “five-year average rate of return,” and the “rate determination date,” please see the Terms of Participation  [ 675 KB].

Example 1: Active Member

John is an active member with an AVC account. Each year, the annual rate of return, less investment management expenses, and the annual AVC administration fee are applied to John's AVC account. John made automatic monthly contributions of $100 to his AVC account on the first day of each month, starting in January 2015. In addition, John transferred $10,000 to his AVC account from his RRSP on April 1, 2015. In total, he contributed $11,200 to his AVC account in 2015. The OMERS Fund rate of return for 2015 will be established on or around March 1, 2016 - this is the rate determination date for AVC purposes. Once the 2015 rate of return is established, John's AVC account will be updated as follows:

• The annual rate of return, less investment management expenses, is applied to John's account and is pro-rated for amounts that are held for a portion of the year;
• The annual AVC administration fee is also applied at this time.

To illustrate how returns and expenses are applied to John's account, let's consider two scenarios: one in which the Annual Rate of Return is positive and the other where the return is negative. Note: All figures are for illustrative purposes only and do not reflect past or future returns or expenses.

Rate of Return Applied to John's AVC Account

Assumptions	Positive return scenario	Negative return scenario
Primary Plan annual rate of return for 2015	7.00%	-7.00%
Less investment management expenses	-0.50%	-0.50%
Rate of return applied to John's AVC account for 2015	6.50%	-7.50%
How John's AVC account is updated (around March 1, 2016)
John's AVC account balance at beginning of 2015	$0.00	$0.00
Total AVC contributions during year	$11,200.00	$11,200.00
Total AVC withdrawals during year	$0.00	$0.00
Rate of return applied to John's AVC account for 2015	$530.15*	-$611.71*
AVC administration fee	-$23.00	-$23.00
John's AVC account balance at end of 2015	$11,707.15	$10,565.29

*Contributions to John's AVC account began to earn the rate of return (i.e., the Annual Rate of Return, less investment management expenses) from the date of each deposit. The rate of return applied to John's account reflects the proration of amounts deposited at different times during the year.

Example 2: Retiring or Terminating Member

(Full withdrawal - documents received after the rate determination date)

Ruth is retiring from her OMERS employer in October 2016 and has decided to withdraw 100% of the funds in her AVC account upon retirement.

Ruth retires and OMERS receives her benefit option documents in October, after the rate determination date (around March 1, 2016). The annual rate of return for the previous year, 2015, has been established.

Update for 2015 (complete). In this case, Ruth's AVC account balance to December 31 of 2015 has already been updated with the annual rate of return for 2015, less investment management expenses, and the AVC administration fee for 2015. Ruth has received her AVC annual statement showing her updated account. We have assumed the net return to be 6.5% for this example.

Update for 2016. Ruth's account balance at the end of 2015, plus any AVC contributions she made in 2016, will now be updated with the five-year average rate of return, less investment management expenses, and the AVC administration fee for 2016.

The five-year average rate of return for this example is based on announced OMERS Fund rate of return for 2015, 2014, 2013, 2012 and 2011 (since the 2016 actual return is not known). After investment management expenses, the net return is assumed to be 5.0% for this example.

As always, the rate of return applied to Ruth's AVC account would be pro-rated depending on when funds were deposited in her AVC account.  

Rate of Return Applied to Ruth's AVC Account

Update for 2015 - already shown on Ruth's AVC Annual Statement	Account balance
Ruth's total AVC account balance at beginning of 2015	$0
Total AVC contributions during 2015	$6,000 (lump sum deposited on April 1)
Total AVC withdrawals during 2015	$0
Rate of return applied to Ruth's AVC account for 2015	$292.77 (Annual rate of return for 2015, less investment management expenses, for an assumed net return of 6.5%)
AVC administration fee for 2015	-$23
Ruth's total AVC account balance at end of 2015	$6,269.77
Update for 2016 - to date of withdrawal (Oct. 15)
Total AVC contributions during 2016	$0
Total AVC withdrawals during 2016	$0
Rate of return applied to Ruth's AVC account for 2016	$247.36 (Five-year average rate of return to the end of 2015, less investment expenses, for an assumed net return of 5.0%)
AVC administration fee for 2016	-$23
Ruth's AVC account balance at withdrawal date in 2016	$6,494.12

Example 3: Retiring/Terminating Member

(Full withdrawal - documents received before the rate determination date)

Charline terminates employment in January 2016 and will withdraw 100% of the funds from her AVC account. Charline terminates employment and OMERS receives her benefit option documents in January, before the AVC rate determination date (around March 1). The annual rate of return for the previous year (2015) has not yet been established.

Update for 2015. In this case, since the Annual Rate of Return has not yet been established for 2015, Charline's AVC account balance will first be updated to Dec. 31, 2015 with the five-year average rate of return, less investment management expenses, and the AVC administration fee for 2015. The five-year average rate of return for this example is based on the five-year average of OMERS Fund rate of return for 2014, 2013, 2012, 2011 and 2010 (since the actual return for 2015 is not yet known). After investment management expenses, the net return is assumed to be 4.5%.

Update for 2016. Then Charline's account balance at the end of 2015, plus any AVC contributions she made in 2016, will be updated with investment returns using the same five-year average rate of return, less investment management expenses, and the AVC administration fee for 2016 - to the date her AVC account is paid out in 2016 (since the actual return for 2016 is also not known).

As always, the rate of return applied to Charline's account would be prorated depending on when she deposited funds in her AVC account.  

Rate of Return Applied to Charline's AVC Account

Update for 2015	Account balance
Charline's AVC account balance at beginning of 2015	$0
Total AVC contributions during 2015	$10,000 (lump sum deposited on April 1)
Total AVC withdrawals during 2015	$0
Rate of return applied to Charline's AVC account for 2015	$337.81 (Five-year average rate of returnto the end of 2014, less investment management expenses, for an assumed net return of 4.5%)
AVC administration fee for 2015	-$23
Charline's AVC account balance at end of 2015	$10,314.81
Update for 2016 - to date of withdrawal (Jan. 31)
Total AVC contributions during 2016	$0
Total AVC withdrawals during 2016	$0
Net return applied to Charline's AVC account for 2016	$38.15 (Five-year average rate of returnto the end of 2014, less investment management expenses, for an assumed net return of 4.5%)
AVC administration fee for 2016	-$23
Charline's AVC account balance at withdrawal date in 2016	$10,329.96