There is a serious crisis with the pension plan for municipal employees in the province. The shortfall in the OMERS pension plan of $10 Billion will cause problems for Ontario cities; Cities who are are starting to be financially stressed from the 2008 market crash.
For the past several years the shortfalls in this plan have been growing exponentially. Nothing has been done to fix the problem and every year adds several more billions of dollars in liabilities onto cities.
Fair Pensions for All has been following this crisis since 2008 and Gareth Neilson , the Director of Communications for Fair Pensions For All, is alarmed. ” It is inconceivable that contributions to the OMERS Pension Plan have grown by 40% in the last five years, reaching an all-time high, and yet the Plan faces a $10 billion deficit. The plan and cities have ignored this problem hoping that it will go away, but every year it comes back with a vengeance and worse than before.”
This year was no exception.
Management at OMERS suggested the problem will be solved through investment return targets being met and as long as demographic assumptions do not change. If this does not happen the plan will run out of money leaving its 429,000 with pension shortfalls in retirement.
Fair Pensions For All founder Bill Tufts is also concerned. ” It is a serious mistake and very irresponsible to think that the problem will take care of itself,” said Tufts. OMERS claims that investment returns will fix the problem and last year the plan posted a 10% return on investment. While this is both admirable and true, the reality is the shortfall climbed by another $3 billion to $10 billion. The rate of return for the plan over the last 10 years has been a very impressive 8.24%. Even with this success, the plan continues to fall short of it necessary targets. It has become obvious that OMERS cannot count on investment to turn the tide on its deficits.
Recently the Institute of Actuaries made a preliminary report on changing demographics. Its findings will be devastating for OMERS as the life expectancy for public sector employees is greater than the general public. A woman who turns age 60, in the general public will now live to 89.4 years and for a male it is 87.3. OMERS plan members retire at an average age of 58 and in the future, most plan members will collect a pension longer than they worked for.
Several smaller communities across the province are ringing the alarms bells. The Eastern Ontario Wardens Caucus and the Mayors of Northern Ontario consider themselves to be on the edge of a financial crisis. With serious infrastructure shortfalls, increasing debts and having to use reserves to meet annual budgets, they are unable to deal with the pension crisis.
Municipalities in Ontario have $17 billion in debt but owe another $5 billion employee benefits liabilities. They now have the now the OMERS pension shortfall to contend with.
Unable to count on the province that is suffering a crisis of their own they need to urgently deal with the problem and convert all pensions from gold-plated defined benefit plans to defined contribution.
Without implementing the urgent changes that are needed taxpayers across the province will suffer. They will see their services fall, taxes skyrocket and businesses leave their communities moving to more tax friendly location. It will become a feedback loop from hell for them.
Bill Tufts, Founder, 905 741 1904