The Ontario Public Service Employees Union is adding its voice to the concerns about possible pension plan changes by the Ontario Municipal Employees Retirement System.
“The OMERS pension plan is in good shape financially and will ensure a dignified retirement for the hundreds of thousands of Ontarians who’ve paid into it throughout their working careers,” said Warren Thomas, the union’s president, in a press release.
“We don’t see any good reason to scale back the size of peoples’ pensions or to increase the amount that people pay in. We’ll fight any proposal to do either.”
Union concerns with OMERS’ ongoing plan review include possible changes to indexing. While such issues are under discussion, the review includes elements that are both enhancements to the plan and potential concessions for members, says Paul Harrietha, chief executive officer of the OMERS’ sponsors corporation.
“It’s about modernizing the plan to the extent that we can, ensuring in the process that it remains sustainable, meaningful and affordable for all the stakeholders, whether they be employers or members, both current and future,” he says.
“The indexing is the big one,” he acknowledges.
Read: OMERS looking at indexing as part of plan review
While the short-term returns for the plan look good, there’s more to the picture of the plan’s health, says Harrietha. “The plan is currently in a deficit situation, so despite these short-term results, we still have a deficit after the 2008 financial crisis. We’re not fully recovered.”
With a deficit as a starting point, Harrietha says there are five key headwinds facing the plan: it’s increasingly unfavourable ratio of active to retired members; the pressures of increasing longevity; concerns about investment returns at the end of an extended bull market; potential disruption in the underlying sectors employing OMERS members; and the forthcoming enhancements to the Canada Pension Plan.
Rigorous actuarial modelling shows the cost of the plan will continue to rise over time and the required contribution levels both from members and employers would eventually increase beyond reasonable levels, says Harrietha.
Read: Plan sponsor tools for closing the pension generation gap
Weighing in on the discussion, the Municipal Employer Pension Centre of Ontario noted the approaches of some other big public sector plans, such as the Ontario Teachers’ Pension Plan and the Healthcare of Ontario Pension Plan. “Ontario’s major public sector pension plans, such as Teachers and HOOPP, base inflation indexing decisions (conditional inflation protection) on plan health and affordability. Why shouldn’t OMERS be doing that too?” it said in a release, which noted OMERS is undergoing its first comprehensive plan review in 50 years.
Harrietha stresses that the approach under discussion would provide maximum levels of inflation indexing whenever possible, but he notes it would depend on the health of the plan. “We think it’s essential to help ensure sustainability, given our rapidly maturing membership,” he says.
In the statement, OPSEU’s president also expressed concern about the speed of the changes. ”As plan members, we understand that we have a responsibility to ensure the plan is financially healthy,” said Thomas.
“But we’re not going to be rushed into making major concessions, especially when we’re not being offered any alternatives to those concessions or even any evidence that those concessions are needed in the first place.”
But according to Harrietha, the discussions have been going on for some time. “We have been actively engaged in discussions with our sponsors for well over two years. Formally, this comprehensive plan review has been happening since November of last year. There has been considerable and ongoing engagement with these groups,” he says.