City employee pension costs big hit to taxpayers

July 30, 2012
By

GuelphMercury

Guelph residents warned to watch pension costs of its city employees

  • Vik Kirsch, Mercury staff
  • Sat Jul 28 2012

GUELPH — City residents can expect rising taxes or other unpleasant alternatives in the years ahead as the municipality grapples with its portion of a large funding shortfall at Ontario’s pension plan for municipal employees, a citizen’s group alleges.

Fair Pensions For All claims the city’s share of the OMERS pension underfunding of future obligations as staff age and retire is approaching $51.5 million by the end of the year.

Founder Bill Tufts of Hamilton calls “bloated” public pension plan benefits the invisible elephant in the room.

“The bottom line is we need to reform pensions,” the employee benefits consultant and Pension Ponzi co-author said Friday.

Prominent member Sue Ricketts, a Guelph financial planner and former Guelph city council candidate, said the pension plan for Ontario’s municipal employees is so much more generous than those in the private sector that paying for it threatens the future growth of cities.

“We’re in the process of creating two classes of people: ones who are very well off and ones who are not, in terms of retirement.”

Ricketts said OMERS future investment earnings can’t realistically fill the funding hole — raising the spectre of city taxpayers chipping in more.

“I think it’s a concern, absolutely,” Guelph Coun. Ian Findlay said Friday. Pension contributions are part of contract negotiations with unionized employees, but those deals are made with recommendations from (non-union) management staff, Findlay noted.

OMERS spokesperson John Pierce strongly rejected the activist group’s characterization the pension plan is in trouble and that it needs radical reform.

“To me, it’s fear mongering,” said the public affairs vice-president, adding the plan’s gone through a difficult recession, but remains financially sound.

But Guelph MPP Liz Sandals said Queen’s Park is urging employers to tackle public pensions now because some municipalities are paying more than their usual 50 per cent share of contributions. “They need to address that.”

Supported by contributions from cities and their employees, OMERS is the Ontario Municipal Employees Retirement System for 420,000 mainly municipal staff, including roughly 1,500 in Guelph. In February, the plan announced its funding deficit grew to $7.3 billion last year from $4.5 billion the year before, citing tough economic times and rising actuarial liabilities as workers age. It expected to eliminate the shortfall in 10 or 15 years with improving investments, higher contributions and lower benefits, though Tufts and Ricketts characterized that projection as unrealistically optimistic.

Pierce said the plan has $57 billion in assets and last year brought in $300 million more than it paid out. He conceded if it had to pay out all its pension obligations tomorrow, those would amount to $64 billion, but that won’t happen. In the meantime, it’s looking forward to promising investment returns as economic conditions improve.

OMERS suffered when the economy crashed in 2008 and its investments lost what Pierce termed a modest 15 per cent, but that was uncharacteristic.

“It’s an anomaly.”

He stressed though investment returns by OMERS are projected to dip at least in the short term to 6.5 per cent, they’ve impressively been in excess of eight per cent over the past two decades.

Guelph corporate and human resources executive director Mark Amorosi termed the analysis by Fair Pensions “misleading.”

“This is not a situation where OMERS expenditures are greater than contributions,” he stated in an e-mail to the Mercury. It’s had a provincially-approved plan since 2010 “to deal with the actuarial deficit through temporary employer and employee contribution rate increases.”

Amorosi added: “At present, there will be no additional burden placed on municipalities including Guelph” beyond that plan.

But Tufts said municipalities must still contend with the large funding shortfall and Guelph faces four options: raise taxes, cut services, increase debt or make the pension plan “more realistic.”

For Tufts, the public pension plan is simply too generous. He said when he looked only at the city’s top 10 local municipal earners, they were projected to collect combined retirement benefits of as much as $40 million after retiring at 58 years of age.

Amorosi said that’s also misleading because employees don’t retire “at the same time with the same amount of service.”

Sandals said the poor investment climate has strained both public and private pension plans right across North America. “This has become more and more an issue.”

Ultimately, the OMERS situation is the responsibility of the pension board comprising representatives from public sector employers and their unions, she said.

Her government had a seat on the board until 2006, when it pulled out because “they’re not our employees,” she explained.

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