April 3, 2012

The Municipal Employers Pension Centre met recently and wishes to update its members on key current and anticipated initiatives, that both separately and in combination, will impact the OMERS Pension Plan and its operation. These initiatives include:
  1. Province’s direction on containing pension costs as outlined its 2012 Provincial Budget Corporation (SC) and Administration Corporation (OAC) Boards;
  2. OMERS SC 2012 Specified Plan Change (SPC) Process;
  3. OMERS SC Bylaw review of composition and appointments process related to the OMERS Sponsors and the OAC and SC Boards; and
  4. Status of the Province’s 2012 Bill 206 Review (devolution of OMERS in 2006)

1) 2012 Provincial Budget Proposed Pension Details

In recognition of the demographic and financial challenges to the sustainability of broader public sector pension plans, the government is proposing changes to Jointly Sponsored Pension Plans (JSPPs); and after a consultation process, it will introduce legislation. We are told that this includes OMERS. The following parameters would form the basis of the province’s legislation:

  • When in deficit, Plans to be required to reduce future or ancillary benefits before increasing contributions;
  • Limits to be set on the amount or value of benefit reductions before consideration of further contribution increases;
  • Benefit reductions would affect future benefits, not those already accrued and current retirees would not be affected;
  • Employee and employer plan contributions to be matched to help reduce pension deficits;
  • When plan sponsors cannot agree on benefit reductions through negotiations, a new third party dispute resolution process would be invoked; and
  • These legislative provisions would be reviewed, once the Provincial Budget is balanced.
Why is this anticipated action of the Province important? OMERS Contribution rates have risen again over the past two years to provide an additional 2 per cent in contributions and an additional 0.9 percent is scheduled for 2013. Last year, the 1% increase alone meant very roughly an additional $150m from property taxpayers was sent to OMERS and it also meant last year that employees sent roughly an additional $150m of their paychecks to OMERS. Municipal and other OMERS employer representatives have consistently said that this is not sustainable and affordable OMERS pension contributions and benefits are needed.

The government’s decision to tackle the cost of public pensions with a view to reduction of future benefits during deficit periods is applauded. AMO and other employer representatives have been trying year over year to negotiate benefit reductions at the Sponsors Corporation through the Specified Plan Change proposal process. It is difficult to defend rising pension contributions and not put limited property taxpayer dollars to work in communities, providing services citizens need daily.

2) OMERS SC 2012 Specified Plan Change (SPC) Process
Each January, the Sponsors Corporation begins its cycle of considering SPC proposals that are submitted by stakeholders or Plan sponsor representatives. For 2012, the deadline for stakeholder proposals was March 1. Sponsor SC representatives have until May 1 to table or amend their formal proposals; and decisions on proposals are to be completed by the end of June. Employer representatives are again trying to tackle benefits on a go forward basis as a way of trying to maintain or reduce contributions. As at March 30, 2012, there were five SPC proposals submitted:
  • SPC #01-12 - RCA Restrictions (AMO, Toronto, OACAS) – i) New employees of OMERS after October 1, 2012 nor any employee of any OMERS investment entity or other entity or corporation controlled or owned by the OMERS (currently not eligible) would not be eligible for enrollment in the RCA. ii) Effective January 1, 2017, the contributory earnings of any OMERS member in the RCA to be capped at seven times YMPE (i.e. $350,700 in 2012). iii) Effective January 1, 2017, and for benefits earned after that date, OMERS employees would no longer be entitled to portability of benefits earned.
  • SPC #02-12 – Delay Early Retirement (AMO, Toronto) - Employees becoming members of OMERS after September 30, 2012 would not be able to exercise an early retirement option before age 57 for NRA 60 members and age 62 for NRA 65 members.
  • SPC #03-12 – Reduce Indexing to 50% (AMO, Toronto) - Employees becoming members of the OMERS Plans after September 30, 2012 to receive inflation protection at 50% of the rate of inflation as measured by Statistics Canada.
  • SPC #04-12 – Indexing of Pension Benefits (AMO) - Reduce inflation protection to 70% of increases in the cost of living as measured by Statistics Canada, with the proviso that if in a given year, investment gains permit and the Plan is not in deficit, benefits payable in the following year to be indexed 100% against increases in the cost of living.
  • SPC $#05-12 – NRA 60 Police Civilians – (PAO) - Provide NRA 60 benefits to members of the Primary Plan who are police civilians, whose employers change to NRA 60 for this class of members.
For more detailed information on the 2012 SPC proposals and their rationale, please visit here.

3) OMERS Sponsors Corporation By-Law Review

The corporate bylaws relating to the composition and appointment process of members to the OMERS Boards provide for a mandatory review in 2012. OMERS is a municipal retirement plan and municipal governments (including their various boards) are the largest employer group within OMERS. The Boards’ composition should be equitable and be reflective of the municipal membership groups and recognize that the SC Board operates on a caucus-based governance model. Key points in MEPCO’s submission:

I. AMO should continue to have representation on both the SC and AC Boards within the current weighted voting model;
II. Management and non-union employees represents over 20% of the employee membership and should have an active voice in the Plan’s governance and the SC should pursue options to accomplish this;
III. The current SC Board Co-Chair approach works well and is strongly supported and that, based on plan membership, one of AMO’s representatives should consistently be a Co-Chair; and
IV. The appointment processes for both Boards needs to be as timely as possible, reflecting both established competency requirements and the sponsor’s perspectives and that a sponsor’s nominee be seated as expeditiously as possible.

The Sponsors Corporation is currently analyzing all submissions and we await the action the SC may take in light of this year’s pending review of the Ontario Municipal Employees Retirement System Review Act, 2006.

4) 2012 Provincial Bill 206 Review

Bill 206, the Ontario Municipal Employees Retirement System Review Act, 2006, [(S.). 2006, Chapter 9, Schedule K], requires the Minister of Municipal Affairs and Housing to undertake a scoped review of the OMERS governance model no later than 2012. The review will address the effectiveness and fairness of OMERS governance in representing the interests of employers, plan members and retirees;  the effectiveness of Sponsors Corporation decision making; and effectiveness in ensuring OMERS financial stability. The legislation does not permit the re-consideration of general governance principles, including devolution as set out in Bill 206 or the continuation of OMERS Supplemental Plans.

An appointment of an independent third party facilitator to conduct the review is pending by the Ontario Chief Justice as provided for the legislation. MEPCO was disappointed that the OMERS Boards could not agree on a facilitator. The MEPCO Board is working on a submission to this review process.

MEPCO is pleased to be representing municipal interests as it researches, advocates and provides municipal perspective on pension matters. MEPCO will continue to provide updates to its members on developments as these initiatives proceed.

The Municipal Employers Pension Centre of Ontario (MEPCO)
MEPCO is a not-for-profit corporation, created by AMO, to ensure that its employer representatives on the OMERS Sponsors Corporation and Administrative Corporation are informed well-resourced and supported by leading pension expertise. MEPCO can raise and manage funds, hire experts who will provide appropriate research and information, and share insights with others as needed.