Public sector employers are struggling to manage their budgets, as are many of their private sector counterparts in the current post-recession economy. However, while the private sector’s response in such times is often to reduce costs by cutting people, salaries and/or benefits, these measures may not have been as prevalent in the public sector, in large part, because of the collective agreements covering much of its workforce.

As a result, certain groups are claiming that Canadian taxpayers will be on the hook when public sector employers are unable to balance the bottom line. In order to avoid that outcome or at least minimize its impact, some are advocating that the public sector be encouraged—even forced—to switch from providing DB pension plans to DC plans, as much of the private sector has.

Certainly, the 2008 global financial crisis created an actuarial deficit in many DB plans, which must be funded. There have been allegations by those in the anti-DB camp that it will ultimately rest with taxpayers to make up this shortfall.

Going to extremes

One such group, Fair Pensions for All, claims that the OMERS DB pension plan, which provides pensions for former municipal employees in Ontario, is unsustainable. It argues the following:

  • municipal employees should not have a DB plan since very few active employees in the private sector have such a plan;
  • taxpayers will have to ante up millions of dollars to bail out OMERS because OMERS currently has a long-term actuarial deficit; and
  • municipalities should be pulling out of OMERS so that they can offer less costly pensions to their employees.

This group, and any others of a like mind, are far too ready to throw the baby out with the bath water. Moreover, in the case of the OMERS plan, their knee-jerk reaction is based on inaccuracies.

Setting the record straight

I readily disclose that I not only receive an OMERS pension, but also represent other individuals who do. Regardless of my desire to maintain a DB pension for current and future OMERS retirees, the facts (readily available from OMERS) speak for themselves.

OMERS deficit

  1. OMERS has an actuarial deficit of $9.9 billion at the end of 2012.
  2. An actuarial deficit does not accumulate into a growing debt like a government debt. It is based on a point-in-time projection that changes year by year.
  3. This deficit is not an indication of OMERS ability to pay pensions in the short term. It collected $3.2 billion in contributions in 2012 and paid $2.7 billion in benefits. It has $60 billion in net assets. There is no money being borrowed by OMERS to cover pension payments.
  4. OMERS has a deficit management plan in place to deal with its actuarial deficit. It implemented a three-year plan of temporary employee/employer contribution rate increases and benefit reductions to address the actuarial deficit over the next 10 to 15 years. Once the plan returns to surplus, these temporary contribution rate increases will be rescinded.

OMERS cost to taxpayers

  1. OMERS members contribute fifty-fifty with employers to support their pension.
  2. OMERS members bear a share of the risk and contribute to their pension with every paycheque.
  3. Over the past 20 years, two-thirds of the capital added to the OMERS plan has been through investment returns; only one-third came from shared employee/employer contributions.
  4. The average OMERS member retiring in 2012 receives an annual lifetime pension of about $28,000 (excluding a bridge benefit payable to early retirees until age 65).
  5. For all existing OMERS retirees, the average pension paid is about $18,000 per year.
  6. The average OMERS retiree’s annual lifetime pension amounts to 30% to 50% of his or her annual compensation just prior to retirement.

Value of OMERS to the Canadian economy

  1. More than 25,000 Canadians are employed by OMERS owned or controlled companies.
  2. Approximately one in 20 people employed in Ontario is an OMERS member, set up for retirement without reliance on government assistance.
  3. OMERS has $37 billion invested in Canada, which includes a number of major long-term infrastructure assets that could only be owned by DB (not DC) plans like OMERS with their long-term payout of pension benefits.

Fairer pensions

The need to better manage total compensation in the public sector is a reality. However, jumping to do away with the OMERS DB pension plan does not make sense. The average OMERS retiree does not receive a gold-plated pension. But we do have some security regarding our retirement income. We are fortunate to have a large, well-managed, compulsory workplace pension plan like OMERS.

Rather than relegating all Canadians to an uncertain retirement by eliminating DB pension plans — and possibly replacing them with DC plans — we should strive to ensure employees are able to retire with both dignity and a predictable income in their senior years. Fighting to preserve DB pension plans is one way to accomplish that.

William Harford is president of the Municipal Retirees Organization Ontario. mroo@istar.ca. These are the views of the author and not necessarily those of Benefits Canada.