August 10, 2012
Update on: i) Contributions  ii) Pooling Investments  iii) OMERS governance five‐year review

i) Contributions: 
Many Ontario public sector pension plans are in deficit because of lower investment returns, increasing number of retirees who are living longer and changes in workforce growth.  OMERS contributions have increased about 60% over the past five years and unless remedial action is taken soon, contributions will continue to grow to manage the deficit.  The overall contribution rate is set to rise from 19.4% in 2012 to 21.2% in 2013. Continued growth in contributions is not sustainable and is the reason for MEPCO’s support of efforts to seek relief from rate increases and reduce benefits, at least on a temporary basis until OMERS Plan deficit is eliminated.  The OMERS funding deficit, which stood at $7.3 billion at the end of 2011 is projected to $10.3 billion at the end of 2012.  Without plan benefit changes, municipal government employers as well as employees will face continuing plan deficits and increased contribution costs for a long period of time.  There are plan design changes that could be put in place until the plan’s deficit is eliminated.  For example, indexation for new enrollees could be reduced from 100%.  In fact, prior to the contribution holiday in the 90’s when the Plan was in surplus, guaranteed indexation was 70%*.  

MEPCO, as well as its plan sponsor representatives at OMERS have been working diligently with the other sponsor representatives on specific OMERS plan changes that would secure some meaningful cost reductions.  While a bit of progress has been made in the last round of plan change proposals,  more is needed. The 2/3rds voting threshold for adoption of a plan change on a board where the structure is 50‐50 employer/employee representation is a challenge for making any substantive progress on contribution rates.  

In the 2012 Provincial budget, MEPCO (AMO) welcomed the government’s legislative initiative to get a handle on growing contribution rates and pension deficits.   MEPCO met with the Ministry of Finance on two occasions to provide advice on how legislation could be drafted in order to achieve a meaningful OMERS pension contribution rate cap and how to reduce benefits for plan members.  We have recently learned that the Ministry of Finance is going to first seek a voluntary agreement by the sponsors of a joint public pension plan (which includes hospitals, teachers, OMERS and several other public pension plans) and if each cannot reach an agreement quickly on how to deal with contributions, there would be a legislative approach.  MEPCO will provide the necessary actuary and legal support to its employer representatives to the OMERS Sponsors Corporation.  A solution is needed and if the OMERS Sponsors Corporation cannot come to an agreement, then MEPCO will press the government for legislation as a clear priority.  MEPCO will monitor and keep members informed of this critical matter. 

*Note:  While the indexation guarantee was 70%, it went to 100% on an ad hoc basis and in times of surplus, the “ad hoc” became the norm.

ii)  Pooling investments: 
Another initiative of the Province is looking at how public sector pension fund investments could be improved, particularly for smaller plans, such as those of the various universities.  Key elements of the work includes looking at whether pooled investments could garner better returns and pension fund investment efficiencies and what could legislation, along with checks and balances, look like.  MEPCO made a submission to the Pension Investment Advisor, Mr. Bill Morneau. The essence of MEPCO’s message was that it supports the existing voluntary pooling of public pension fund assets under Bill 206 provisions.  However, should OMERS become a Consolidator for pooling of pension assets, current OMERS governance sponsor representation should not be diluted without the agreement of current Plan sponsors.    
   
iii) OMERS Governance Review:
MEPCO is readying a submission to Tony Dean (the Ministry of Municipal Affairs and Housing’s reviewer) with its perspective on how the OMERS governance model as legislated in Bill 206 is working.  Bill 206 devolved sponsorship of the plan from the province to municipal employers and employee unions/associations.  This five‐year review, which is scoped by legislation, is focused on how the interests of OMERS plan sponsors, members and retirees are being represented.  The MEPCO submission should be ready for release by August 15th and will be posted on our website and a communique of its highlights sent to you as well.  

Municipal employers may receive questions from the media, local taxpayers and other groups such as Fair Pensions For All, regarding OMERS Pension Plan sustainability and review.  To further assist municipal councillors and staff, MEPCO has developed an online pension orientation/toolkit which provides fact sheets on OMERS, current pension issues and a glossary of pension terms.  

Working together, through MEPCO, municipal employers present a united front and prudent advocacy on OMERS matters.  The Centre will continue to keep members updated on OMERS developments. 
   
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.