By Doug Hallett
A financial planner who ran unsuccessfully for city council in 2010 is helping to launch a provincewide attack on what she calls a “gold-plated” pension plan for municipal employees.
The Ontario Municipal Employees Retirement System (OMERS), which covers municipal employees, is under fire from Sue Ricketts, who ran in Ward 6 and belongs to an Ontario group called Fair Pensions for All.
“Gold-plated” plans like OMERS, which provide retirees with 70% of their pre-retirement income, are no longer affordable and also aren’t necessary, Ricketts said in an interview Thursday.
“As a financial planner, I do know that 70% of pre-retirement income is not needed,” she said. “You can usually get by with 40% or 50%.”
She said defined benefit plans like OMERS, which pay out prescribed benefits that are generally indexed to inflation, are no longer affordable in the public sector when most of the private sector is moving towards defined contribution pension plans. In defined contribution plans, retirees get benefits based only on the actual contributions they and their employers have made and the accumulated earnings on these contributions.
“We have to find an answer, because our children and grandchildren are going to have to pay for this, but so are we,” because it’s a rapidly aging society, said Ricketts, the local spokesperson for Fair Pensions for All.
With low interest rates over the past eight to 10 years, OMERS faces a growing shortfall that presents Guelph with an urgent “pension pickle,” she charged.
Many U.S. states have already been hit hard by pension costs for public employees, and “that is much of what is wrong in California,” said Ricketts, who said she has met with Mayor Karen Farbridge and local MPP Liz Sandals to talk about OMERS.
In Ontario, current pension trends point to an “interesting society” in the future, she said. “The problem is that we’ll become different classes of society, with maybe 20 per cent living very well and having lots of money.”
Ontario MPPS no longer belong to defined benefit pension plans, after changes made by the last Progressive Conservative government.
“As an MPP, my pension plan is actually a glorified RRSP,” Sandals said in an interview Friday.
The province removed itself from any involvement in OMERS in 2006, on the grounds that employees covered by OMERS are “not directly provincial employees,” she said.
Sandals said she wouldn’t be surprised if OMERS, like many other pension plans, is currently in a big shortfall position. Many pension benefits contained in defined benefit pension plans were based on actuarial assumptions of 10% to 15% annual rates of return on the money in the plans, and since the beginning of the recession those sorts of returns “just have not been there,” she said.
Pension obligations are a big problem for various public sector organizations, including the University of Guelph, she said. “Certainly there is a huge discussion going on around pensions.”
Any shortfall at OMERS would be the responsibility of Ontario’s municipalities, not the province, Sandals said. “If there is a shortfall, they are going to be liable.”
The current $7.3-billion OMERS shortfall works out to $27,750 for each of the 263,000 municipal employees in Ontario covered by the plan, according to a news release sent out Thursday by Fair Pensions for All. The City of Guelph has about 1,500 employees, so its share of the shortfall is $41.7 million and rising, the release said.
Mark Amorosi, the city’s executive director of corporate and human resources, called this a “misleading” number. It’s an “actuarial deficit,” not money that has to be paid now, he said Friday in an email sent in response to a Tribune query. And, he said, OMERS “has had a plan in place since 2010 to deal with the actuarial deficit through temporary employer and employee contribution rate increases.”
A city budget report presented to council last week shows a 1% increase in the city’s contribution rate for OMERS in 2013, amounting to $961,000. This is a big part of a projected $2.6-million projected increase in next year’s cost to the city of city employees’ benefits.
“OMERS projections show an increase (in) the actuarial deficit to about $9.7 billion by the end of 2012,” Amorosi said. But this actuarial deficit is projected “to gradually decrease to zero in the next 10 to 15 years, based on the temporary contribution rate increases already in place,” he said.
OMERS has $55 billion in assets, and it’s currently taking in more than it’s paying out, he said. “In 2011, OMERS collected $2.7 billion in contributions, which are paid 50 per cent by employers and 50 per cent by employees, unlike other public sector pensions,” and it paid out $2.4 billion to retirees, Amorosi said.
Farbridge was on vacation and could not be reached for comment.