The Ontario government has stirred up a hornet’s nest with its plan to change the governance structure of the massive Ontario Municipal Employees Retirement System.

Municipal governments that employ members of the pension plan claim the new rules will be so costly for them that property taxes will go up by an average of 3%. The Canadian Union of Public Employees, which represents more than 45% of the active plan members, is holding strike votes across the province and could walk out over the proposed changes

It appears, however, that the provincial government will proceed. It did address some of the concerns raised by stakeholders through last-minute changes in early February. The government is expected to bring its Bill 206 back to the legislature for third and final reading in mid-February. No date has been set for the bill to take effect.

The government says the legislation is intended “to fulfil a commitment made by the premier, when leader of the official Opposition, to transfer governance of OMERS from the Ontario government to those who pay into the plan.” It notes OMERS remains the only pension plan in Ontario in which the government plays the sponsor’s role without being a direct contributor to the plan.

As well as instituting a complicated governance arrangement, Bill 206 also requires establishment of supplemental plans for police, firefighters and paramedics, who would then be entitled to better pensions than members of the basic plan. It’s the supplemental plans that are causing the most controversy.

With some $39 billion in assets and about 355,000 members, OMERS is the third-largest pension plan in the country. Current and former members of OMERS come from 900 employers, including municipal governments, school boards, libraries, police and fire departments, children’s aid societies and other local agencies. The plan members are represented by about 50 unions.

CUPE maintains OMERS has suffered from poor governance for decades. The pension fund is under investigation by the Financial Services Commission of Ontario over its decisions to outsource the management of its investments in real estate, private equity and infrastructure to outside entities heavily influenced by some former employees. It repatriated the investments a few years later at an undisclosed cost that CUPE describes as “tens of millions of dollars.”

As well, CUPE says, the proposed governance structure has no effective accountability mechanisms and will do nothing to address OMERS’ management problems.

Here are the key provisions of Bill 206:

> The existing OMERS board will become the Administration Corp. and will be responsible for day-to-day operations of the pension plan, including investments and funding policies. New nominations will be made on a staggered basis and, ultimately, the body will have 14 members, half representing employees and half the employers.

> Instead of the provincial government acting as plan sponsor, there will be a Sponsors Corp., with responsibility for the OMERS plan, including plan changes, benefit design and contribution rates. The corporation will also have 14 members, half representing employers and half the employees, but a two-thirds voting majority will be required to approve any changes, including bylaw changes.

Brian O’Keefe, secretary-treasurer of CUPE Ontario, says the proposed changes will virtually ensure no significant changes or future benefit improvements can be made to the plan. Sponsors Corp. is scheduled to meet every three years only, and there is also no reporting relationship between Administration Corp. and Sponsors Corp., which could lead to some serious accountability issues in the future, O’Keefe says.

> Administration Corp. will be required to set up supplemental plans, with parameters already established by the government, within two years for police, firefighters and paramedics, who would then negotiate their membership in the plans through local collective bargaining. The groups would have access to enhanced benefits such as early retirement with full benefits or an increased benefit accrual rate of up to 2.33% of the best three or four years of earnings for each year of service.

Members of the basic OMERS plan have been restricted to an accrual rate of 2% minus an offset of 0.6% for the CPP, creating a 1.4% accrual rate. Although the cap on that rate was eliminated in the final round of amendments to Bill 206, O’Keefe says, it is still in the Municipal Act, so the impact of the change is still not clear.

@page_break@Discriminatory aspects

When groups negotiate a supplemental plan, it will be referred to Administration Corp., says O’Keefe, thus allowing them to bypass the two-thirds vote requirement of Sponsors Corp. Any other group that wants to negotiate a supplemental plan would be subject to the two-thirds vote rule.

“This reinforces the discriminatory aspects of this bill,” says O’Keefe. “We have nothing against police and firefighters getting decent pensions. But it’s totally inappropriate that only one group gets [a supplemental plan] and not the broad mass of the membership.”

Brian Rosborough, director of policy at the Association of Municipalities of Ontario, says that, assuming the supplemental plans have to meet the solvency requirements of Ontario’s pension legislation — that is, they must have sufficient assets to pay the promised benefits if the plan is wound up — municipalities funding the plans will face dramatic cost increases.

The AMO’s initial analysis, using actuarial data supplied by OMERS, suggests supplemental pension benefits for the select employees could cost as much as $380 million in new labour costs, representing a possible property tax increase of 3% province-wide. That’s not including a 9% increase in contribution rates, effective Jan. 1, faced by OMERS employers and employees to fund a $2.5-billion funding shortfall in the main OMERS plan, says Rosborough.

For its part, the government says the AMO’s cost estimates are overstated and represent a “worst case” scenario. For example, says Janet Hope, director of municipal finance at the Ministry of Municipal Affairs and Housing, the estimate apparently includes benefits that are not mandated in the plan. As well, she says, costs would be limited because local groups of firefighters, police and paramedics would only be allowed to access one benefit at a time, with a minimum of 36 months before a second benefit can be added. The government hasn’t come up with cost estimates, she adds, because it does not have access to detailed information on salaries of plan members. IE