Ontario Downsizes Proposed Super Fund?
The Ontario Liberals say they have taken another step toward reducing their multi-billion-dollar deficit, this time by negotiating new public sector pension plans that freeze contribution rates for three unions.In her article, Karen Howlett of the Globe and Mail reports, Ontario downsizes proposed super pension fund for public workers:
The five-year rate freeze applies to both employers and employees of the Healthcare of Ontario Pension Plan, the Ontario Public Service Employees Union Pension Plan and the Colleges of Applied Arts and Technology Pension Plan.
They will save the province $1.5 billion over the next three years the government would have otherwise had to pay, said Bob Chiarelli, member of provincial parliament for Ottawa West-Nepean and the minister of Infrastructure, in a news release issued Wednesday.
It is the Liberals’ latest attempt at reining in a $14.8-billion deficit that has steadily grown since they took power nine years ago.
They imposed a wage freeze on teachers across the province at the end of the summer, while at the same time limiting their ability to strike. However, four of the unions representing affected employees have announced plans to challenge the legislation in court.
More recently the Liberals announced a pay freeze for about 500,000 workers, including civil service employees and those at hospitals, hydro companies and colleges.
Both opposition parties, the Progressive Conservatives and the NDP, have said they won’t be supporting the plan. The PCs have called the bill “weak” because it doesn’t apply to municipal workers such as firefighters and paramedics.
The impasse was Premier Dalton McGuinty’s stated reason for hitting the reset button on the provincial legislature last week through by announcing a controversial measure called prorogation.
The Ontario government is considerably downsizing a proposed super pension fund that would manage the retirement savings of public-sector workers.And Jonathan Jenkins of the Toronto Sun reports, Ontario eyes freezing its pension plan contributions:
The government was planning to create a pooled fund to manage the pension plans for employees in community colleges, many universities and the province's largest public sector union. But under a new accord with the government, two of the pension plans have been exempted from becoming part of the proposed fund.
The super fund was to rank as the third-largest public sector pension plan in Ontario, with assets of $46-billion. But with two pension plans now out of the mix, its assets would shrink to just under $27-billion.
Finance Minister Dwight Duncan announced on Tuesday that the Ontario Public Service Employees Union Pension Plan and the Colleges of Applied Arts and Technology Pension Plan have each agreed to freeze their contribution rates for five years.
If there is a funding shortfall during that period, the pension plans would be required to reduce future benefits before increasing employer contributions. The two plans have combined assets of $19.3-billion.
The agreements demonstrate that the government can get work done even when the legislature is not in session, said Mr. Duncan, who vigorously defended Premier Dalton McGuinty’s decision to prorogue parliament indefinitely and derail committee hearings into two cancelled power plants.
“To listen to the opposition, you would think that MPPs only work when the house is in session,” Mr. Duncan said.
The pension plan accords, reached at a meeting on Monday evening, are part of the austerity measures Mr. Duncan unveiled in the budget last March to help the province tackle a projected deficit of $14.4-billion for this year. He said public-sector employees in Ontario will have to make higher contributions to their pension plans, have their benefits cut or work longer before they can collect retirement pay.
The Healthcare of Ontario Pension Plan, with assets of $40.3-billion, has also agreed to freeze contribution rates for five years. HOOPP, which was not to be part of the proposed super fund, got its own quid pro quo for agreeing to freeze contributions.
Currently, employees in HOOPP contribute 45 cents to the plan for every 55 cents from their employer. The government had planned to make employees subject to a 50-50 funding arrangement, HOOPP chief executive officer Jim Keohane said in an interview.
“They backed off on that,” he said.
Pooling pension would create economies of scale and reduce administration costs. But there has been considerable pushback from labour groups amid concerns that they would have less say in how their funds were managed. Officials at OPSEU and CAAT both expressed relief that they will no longer be forced to pool their assets.
“The agreement is a major victory over what was sure to be an all-out attack on retirement security for thousands of public sector workers,” OPSEU President Warren (Smokey) Thomas said on Tuesday.
However, the Canadian Union of Public Employees, another labour group, said the agreement with HOOPP is premature.
“Unanimous consent of all [the participants in the pension plan] is required and CUPE is not in agreement,” it said in a statement.
A spokeswoman for Mr. Duncan said the government still plans to create a pooled fund to manage university employees’ pensions as well as the $12-billion fund set aside to safely store decommissioned nuclear reactors. The government is also looking at creating a pooled pension fund with assets of just under $15-billion for employees of the province’s four electricity utilities, including Hydro One and Ontario Power Generation.
Mr. Duncan said the agreements with the three funds to freeze contribution rates will generate savings of $1.5-billion over three years for the province, but they will not show up in this year’s budget.
The agreements do not address “the real and pressing need” for a public sector wage freeze,” said Progressive Conservative MPP Peter Shurman in calling on the government to restart the legislature.
Ontario could avoid costs of up to $1.5 billion within three years by freezing the amount it will contribute to three pension funds, Finance Minister Dwight Duncan said Tuesday.I agree with Peter Shurman, these proposed changes won't make a material impact on Ontario's ballooning deficit in the near-term but faced with soaring deficits, the government decided to act and go after pensions.
“If you remember in the budget, I said the default for pension shortfalls would no longer be increases in contributions but decreases in benefits — if needed,” Duncan said. “This will allow us to avoid up to $1.5 billion in costs over the life of the agreement.”
The three pensions include the Healthcare of Ontario Pension Plan (HOOPP), the Ontario Public Service Employee Union Pension Plan, and the College of Applied Arts and Technology Pension Plan — although the Canadian Union of Public Employees said an agreement on HOOPP is not yet finalized.
“This is a very strange way of doing business,” Michael Hurley, the president of CUPE’s hospital union council, said, adding Duncan was moving with “unseemly haste” to announce a deal.
CUPE, though, has no objection to freezing employer contribution rates and it’s unlikely to derail the agreement.
Duncan said the HOOPP board had signed off on the agreement and getting CUPE to accept the deal was an “internal” matter.
Finance officials said the three pensions together are worth about $70 billion and have 240,000 active pensioners. It doesn’t extend yet to the Ontario Teachers Pension Plan, worth $117 billion and with 170,000 pensioners, although Duncan said if an agreement can’t be reached with the plan’s board, legislation is an option.
The need to make the changes was laid out by economist Don Drummond in his February report on how Ontario could reform its public services, Duncan said.
“Drummond said the fastest growing line item in our budget is pension costs and it’s expected to rise quite considerably over the next five years,” Duncan said. “This allows us to avoid that. It will allow for the continued sustainability of these plans.”
Progressive Conservative finance critic Peter Shurman said the $1.5 billion in costs “avoided” doesn’t affect Ontario’s deficit as it stands.
“The fact of the matter is that $1.5 billion does not impact the people of Ontario in any meaningful or near-term way,” Shurman said.
These austerity measures mean public sector employees in Ontario will have to make higher contributions to their pension plans, have their benefits cut or work longer before they can collect retirement pay.
As far as downsizing the proposed super fund, few details were provided in the Globe article above as to why officials at OPSEU and CAAT both expressed 'relief' that they will no longer be forced to pool their assets except to say that there was 'pushback' from labour groups amid concerns that they would have less say in how their funds were managed.
I am of the view that pooling assets isn't easy but it creates economies of scales and reduces administrative costs. Those labor groups might want to seek solid independent advice on the pros and cons of pooling assets because longer-term, I'm of the view their plan members would be much better off being part of a large, well-governed plan.
As far as HOOPP, these new measures won't impact their plan. They led their peers in Canada, up 12.2% in 2011, and enjoy the enviable position of being fully funded. If they can maintain this fully funded status by properly matching their assets and liabilities, they will not need to raise the contributions for HOOPP employees to a 50-50 funding arrangement.
That leaves the Ontario Teachers' Pension Plan, another world class plan that also delivered stellar results in 2011. In a recent comment on the Oracle of Ontario, I discussed how OTPP uses the lowest discount rate in the industry, 5.4%, reflecting the older demographics of its plan. Some experts have told me this low discount rate is "too conservative" and "overstates" the true liabilities of that plan. If the board doesn't reach an agreement with Ontario's teachers, legislation will likely be enacted, and tensions will mount.
Finally, I was struck by a letter published in the Chronicle Journal by Louise Fisher, OPSEU retiree, who states the following on leaving pensions alone:
I understand that prior to proroguing parliament, the Ontario government was moving toward pension reforms that would ultimately see control of our public service pensions turned over to corporations, despite the fact that they are very well-managed and quite stable as is.
It’s no secret that governments at all levels are vigorously seeking new and creative ways to save money and to pay down ballooning deficits. But this has led to a disturbing trend in which it is becoming increasingly popular to mess with the very lifeblood of ordinary citizens.
To take such unnecessary risks with something that’s taken an individual a lifetime to build, and is essential to the very survival of many senior Canadians, is unconscionable. It is not only morally and ethically wrong, in my opinion, but amounts to nothing less than theft.
I have had to work well over 30 years for my modest income, and like so many other public- and private-sector employees I paid dearly into that pension believing that it would be there to sustain me in my senior years.
Clearly, Ontario’s governments over the past 50 years have ignored, and failed to plan for the “grey tsunami” that they knew would eventually come and is now hitting Canada in a big way. Instead, our elected officials squandered or mismanaged many of the tax dollars seniors paid out over the past half-century that should have gone into affordable senior public housing, long-term care facilities, and many other health-related and socially relevant services that are shamefully lacking in Ontario today.
That being the case, it is even more imperative that seniors retain what pension funds we currently receive in order to help us stay as healthy as possible, and in our own homes for as long as possible (those of us who are fortunate enough to have one, that is).
I therefore implore you and your colleagues to leave our pensions alone, and not to take action that could exacerbate an already dire situation. To do otherwise is to risk the anger of all seniors who vote in much larger numbers than ever before!Whether or not you agree with Louise Fisher, she eloquently states the point that she and millions of other workers with modest incomes have contributed 'dearly' into their pension believing it will be there to sustain them in their senior years. When we mess with pensions, we break a sacred promise.
More worrisome, if governments and corporations continue cutting defined-benefit pensions, they will be condemning millions to pension poverty. That's when you will really see deficits ballooning out of control.
Below, leave you with Yanis Varoufakis's latest interview on Australian television on how the middle class in Greece is being decimated by austerity programs. Don't agree with everything Varoufakis states but this interview is a must watch for Canadians who take far too many things, including education, healthcare and pensions, for granted.