October 17, 2012

Ontario municipalities will be shocked to learn that the Province’s proposed framework to cap aspects of Ontario’s jointly sponsored public pension plans (JSPPs) will no longer include the Ontario Municipal Employees Retirement System (OMERS) Plan. AMO and the Municipal Employer Pension Centre of Ontario (MEPCO) are extremely disappointed and concerned about this policy departure and what it will mean for OMERS and municipal budgets.

In September, each of the JSPPs was asked to work on agreements to reduce benefits and help to manage escalating pension deficits and contribution costs. The OMERS Sponsors Corporation was undertaking this work accordingly. Then, suddenly, it was advised by Ontario’s Ministry of Finance that OMERS would no longer be included in the framework to cap jointly sponsored plans, even though the Ontario Government contributes to the pension costs of school board and children’s aid society employees. The Ministry’s rationale for the change is that OMERS, unlike the other five affected JSPPs, is not consolidated on the Province’s financial statements.

OMERS faces the same challenges as Ontario’s other JSPPs. Like many other public sector defined benefit plans, it has a significant deficit and its sustainability is being challenged. The OMERS deficit now stands at more than $7 billion. Efforts to address the OMERS deficit through contribution rate increases are driving up municipal taxes and pressuring cuts to municipal public services during a time of global economic hardship. The Ministry’s ‘technical rationale’ for excluding OMERS from the cap leaves property taxpayers exposed to continued rate increases and it is fair to ask why the government is ignoring the need to reduce pension costs for all public sector pension plans.

Over the past five years, OMERS contributions have grown by about 60 per cent. This is not sustainable, which is why AMO and municipal government employers welcomed the Ontario Government’s 2012 Budget proposals, which would have capped contributions and directed plan sponsors to make choices about reducing future (not accrued) benefits before further increasing employer contributions. Now that the government has retreated from this, we are left trying to achieve benefit concessions under a system that requires 2/3 majority support from the employer and employee association representatives who make up the Board of the OMERS Sponsors Corporation.

Contribution rates are already high – and in the absence of action from the Ontario Government, or serious consideration by employee associations of even temporary benefit changes, contribution rates will continue to grow. This will further deflect municipal tax dollars away from basic programs and services, as well the capacity to manage future growth.

In 2011, the OMERS Sponsors Corporation adopted a Statement of Plan Design and Objectives (SPDOS) that is based on the 2009 Primary Plan valuation and projections. Under that statement, when combined contribution rates exceed 19.5 per cent, benefits will be reduced to make up the funding shortfall. However, these changes must happen through the annual Specified Plan Change Process, which provides much less certainty than the Ontario Government’s capping approach would have. For 2013, the total combined blended contribution rate will reach 21.2 percent. From a municipal government perspective, and likely from an employee’s perspective, the current contribution rates are already too high and unsustainable. Last year’s 1 per cent rate increase cost municipal governments an additional $150 million dollars. This year’s rate increase is 0.9 per cent.

AMO, through MEPCO and its representatives to the Sponsors Corporation, will continue to push OMERS to take immediate action to address contribution rates. No government can allow the cost of public pension plans to undermine its ability to deliver core programs and services, or compromise investment in vital infrastructure. Municipal governments will be extremely disappointed with the government’s reversal of its earlier decision to include OMERS in its JSPP initiative. Notwithstanding the proroguing of the Legislature, the Ministry of Finance is still facilitating work with its pension plan employee sponsors on capping agreements against the backdrop of future legislation, if negotiated agreements are not achieved.

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