MTAG calls for Summit on Municipal Pension Best Practices

 

Municipal pension plans are unique to all others because they are funded by a tax that is not based on income. In the court of public opinion on public sector pension reform, taxpayer groups are the prosecution, city management are the defendants, unions are the defense lawyers, voters without pensions (62% of the population) are the victims, and politicians are the judge and jury.

 

RETIREMENT AGE: The new OAS eligibility age of 67 should be the standard for new and recently hired municipal employees, this would give workers more time to contribute and since only 38% of Canadians even have a workplace pension, this change will be supported by the public. The number of OMERS early retirements rose 54% in 4 years to 4,716 in 2011, would taxpayers accept a 13% yearly increase in property taxes to fund early retirements?

 

In Montreal pension liabilities rose 460% to $600 million from $130 million in 2005; their average retirement age is 55. Montreal and many other Quebec municipalities are asking the Province to legislate a way out of the pension problem or give each City the power to legislate.

 

The Quebec City Mayor Lebeaume has called for an increase in the minimum retirement age with a rewrite of existing contracts that make the City responsible for pension fund deficits. He has called for a Province wide summit on pension reform. MTAG would like to call for a Canadian summit on public sector pension reform with a focus on taxpayer affordability.

 

INDEXING: St John has already announced layoffs to deal with the pension obligations and is proposing cuts to the benefits like reducing the inflation protection. They even contemplated bankruptcy to allow a restructure of pension contracts. One of the factors that contributed to the unsustainable deficit was “excessive disability pension awards”.

The Healthcare of Ontario Pension Plan (HOPP) has dropped guaranteed inflation protection.

 

PENSION CALCULATION: The Saskatchewan Teachers’ Pension Plan announced that, as of 2015, pension payouts will be calculated on career-average earnings as opposed to 70% of highest average salary in Ontario and a 15 year index.

 

ARBITRATION DISCLOSURE: A $1 salary increase means $16 in addition pension payouts to support a worker that maybe retired for 30 years. Non-salary present and future costs of union contracts should be fully quantified. Ontario Provincial Police Association represents 8,700 officers and civilian employees. A first class constable currently earns $83,483 a year, and the pay hike of about 8.5% would raise that to just under $90,600. This singular decision might have increased the OPP pension liability by $1 billion.

 

In the City of Stratford, December 2011, an arbitrator awarded city firefighters and dispatchers retroactive pay hikes of three per cent in 2007, 2008 and 2009, and pay increases of 3.6 per cent for 2010 and 3.8 for 2011 and 2012. This will result in over a 20 per cent salary increase while the incomes of most families stagnate. What is the impact of this unelected arbitrator on pension liabilities?

 

EMPLOYER EMPLOYEE LIABILITY: The Federal Government has signaled a plan to ask public servants to contribute a higher percentage of their pension and increase the age of eligibility.

 

The City of Regina city manager gave 2 options to make pensions sustainable, increase contribution rates or reduce future benefit. Regina taxpayers are facing a 25% increase in annual contributions.

With reference to the HOOPP, the employer pays 126% of what the employees contribute. Ontario might face a choice between caring for baby boomers or maintaining this abnormal contribution.

 

BENEFIT REDUCTION: The City of Toronto submission to the Ontario expert commission on pensions, was that the funding threshold be set at 80%. Some would imply that the City is indirectly saying that a 20% cut in benefits is needed to make their pension plans affordable.

 

Don Drummond wrote that without any changes, pension expenses will rise 70 per cent by 2017. He recommended that due to an adverse effect on disposable income, pension contributions should not be increased; rather benefits should be reduced by legislation if necessary.

 

DEFINED CONTRIBUTIONS: Export Development Canada has moved to defined contribution plans for new hires. Only 56% of the private sector has a defined benefit plan while the same figure is 94% for the public sector.

 

DEFINING THE PROBLEM: Subsequent to the 2008 stock market crash, most governments extended the five year period for making up deficits to 10 years. This should have been a trigger for pension reform for new hires. Why are private sector taxpayers being asked to bail out the public sector when they were not bailed out?

 

The Ontario Teachers’ Pension Plan is the largest in Canada. Just this year, there was another unfunded liability with the Teachers Pension Plan (TPP) of $9.6 billion, this is in addition the previous $17.2 billion identified in 2011. Experienced teachers earn more than $90,000 annually; get up to half a year’s pay upon retirement as gratuity for unused sick time. Should the government legislate away this gratuity?

 

On June 30, 2006, the Ontario Municipal Employees Retirement System Act changed the OMERS governance model to an independent one. It gave employers and employees control over the pension plan. The Sponsors Corporation determine benefit changes, contribution rate adjustments and any amendments to change the reserve to stabilize contribution rates, plan design and compensation levels. The 2011 unfunded pension liability for OMERS was $7.3 billion

 

In Ontario the Public Service Pension Plan (PSPP) is scheduled to receive $142 million per year for 15 years from the Government, this is $2.1 billion dollars.

 

From 2001 to 2010 contributions in BC rose 97%, but payments within the same time period rose 123%.

 

Ade Olumide, President
Municipal Taxpayer Advocacy Group (MTAG)
admin@municipaltaxpayer.com