The Ontario government’s disagreement over how to treat the surpluses of two of its major pension plans is heating up once again as the province’s auditor general claims it has understated its deficit by more than $3 billion over the last two years.
As a result, auditor general Bonnie Lysyk has issued a qualified opinion on the government’s consolidated financial statements for 2016/17. “The legislature and all Ontarians must be able to rely on the province’s consolidated financial statements to fairly report the fiscal results for the year,” Lysyk said in a statement yesterday. “This year they cannot do so.”
The comments follow the Ontario government’s release of its public accounts on Thursday that showed a much lower deficit of less than $1 billion for 2016/17, which was $3.3 billion below what it had initially projected. While the government has touted its financial progress, Lysyk’s concerns about how it’s treating the surpluses of the Ontario Teachers’ Pension Plan and the Ontario Public Service Employees’ Union pension plan have cast a shadow on its fiscal results.
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At a news conference on Thursday, Treasury Board President Liz Sandals maintained the government is comfortable with its stance on the pension issue, particularly in light of expert opinions it has sought that backed up its position. “The advice that we have received is quite strong, and I think that we have agreed . . . to disagree,” Sandals told reporters in Toronto.
In releasing its public accounts for 2016/17, the government noted it had restated its results for 2015/16 to recognize the assets of the two jointly sponsored pension plans, which is in line with its accounting practices since 2001. In 2016, the province passed a time-limited regulation to require a full write-off of the net assets of the two plans as the disagreement with Lysyk’s office continued.
Key to the dispute is whether and how the government can access the pension surpluses. While the government recorded $12.5 billion as a net pension asset related to the two pension plans this year, Lysyk maintains the government doesn’t have the unilateral right to access that amount without members’ consent. The government, however, argues it enjoys an economic benefit from the surpluses through potential reductions to contributions to the plans.
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To back up its stance, the government noted that as a result of the improved financial position of the Ontario Teachers’ plan, the two sponsors negotiated a 1.1 per cent cut to contributions that will take effect on Jan. 1, 2018.
Lysyk has also pointed out that the government’s share of the surpluses in the two plans is only $5.7 billion, which is less than what it has claimed on its consolidated financial statements. In addition, she suggested her position is consistent with how the British Columbia and New Brunswick governments apply Canadian public sector accounting standards and noted that rather than following those rules, Ontario is relying on the recommendations of a panel of experts it appointed.
While Lysyk has continued to challenge the government, Ontario officials pointed out it’s not the first time an auditor general has issued a qualified opinion on a province’s finances. Finance Minister Charles Sousa also downplayed the impact of Lysyk’s stance, suggesting the dispute hasn’t affected the province’s ability to issue debt or the overall investment climate. “We have highly liquid investments and bonds,” he said, suggesting investors remain confident in the province’s economy.
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