Posted August 1, 2012
This week there was a flurry of reports about the public service pension plan known as the Ontario Municipal Employees Retirement System (OMERS).
As background, OMERS has $55 billion is assets to cover the retirement needs of 263,000 municipal employees in the province. But any shortfall in the amount of funding required keeping the sacred promise to employees lies with the municipal taxpayer. Contributions made last year went toward covering 2/3rds of the shortfall and the balance went toward keeping the pension promise to current employees.
Today, the OMERS funding shortfall is predicted to reach $9.7 billion in 2013
This data is prepared by the expert, non-profit pension organization called Fair Pensions for All. The Guelph area representative is Sue Ricketts who revealed a number of the issues to make up this commentary.
Here’s an example: An OMERS member who retires after 30 years of service will receive back in pension payments, on average, up to ten times the contributions (plus interest) they paid to OMERS during their career.
The pension problem is here now
Let’s sample how some of the top Guelph managers’ pensions will be paid out if they work for 30 years and retire at 65.. The provisos are: The amount is based on a life expectancy of 85; working at current salary level for five years; and indexed at 2 per cent annually upon retiring.
Salary Annual pension Lifetime payout
Chief of Police $209,733 $135,313 $4,782,550
Chief Admin. Officer $195,818 $125,573 $4,438,300
Fire Chief $169,320 $107,024 $3, 782,697
Director of Operations $167,843 $105,990 $3,746,154
But there is more.
Those figures do not include any accumulated sick leave benefit, payouts for unused vacation, retirement health benefits, early retirement availability.
In fact, statistics show the average employee retires at age 58.
Pension payments have almost doubled in five years.
How many private sector employees have that kind of a deal?
Keep in mind that the municipal employee contributes half of the allotted amount to OMERS while the taxpayers must match it.
Next year, Guelph taxpayers will pay OMERS $961,000 as its share. This is part of the projected total increase of $2.6 million for employee benefits. Consider, in 2011 the cost of employees was $155.2 million of the total budget spending of $174 million. That is more than 89 percent of city’s total budget in 2011. Further, it is an increase of $10.5 million more for staff pay and benefits from 2010.
In 2011, the total city budget increased by $10.7 million. Of that, staff remuneration took almost all of it.
In 2011 the average salary and benefits package for the 1,506 fulltime equivalent employee was $103,054. Five years ago the average was $82,563. Considering that the city went through a global recession, the staff did not suffer in any way in terms of their pay and benefits. Nor did they experience layoffs or loss of benefits as was experienced by many employed in the private sector.
The taxpayers provided the ultimate in security for its employees.
The hidden story here is the growing cost of city staff salaries and benefits. This is not only our obligation to current and past employees, but to future employees.
The number of retirees will grow at the historical rate in the past five years of 6.24 per cent increase in additional staff. Just think., at the present rate of expansion the city staff could number 2,222 by 2,021. That means that within 15 years, 2006 to 2021, the city staff will increase by 716 employees, but will the population of Guelph increase to 240,000 residents?
That’s not going to happen.
The city replies
Mark Amorosi, the city’s spokesman on employment matters, wrote that there was nothing to worry about. Well, it’s his job to reassure the staff that there may be an enemy at the gate.
But consider the facts.
In the early 2000’s, OMERS declared a pension holiday and employers and contributors made no contributions for two years. They didn’t stop there; they increased pension benefits for all its members.
The reason they did this was because the system was receiving up to 11 per cent return of their investments. Then, along came 2008 and the collapse of the stock markets. Interest rates on fixed-income investments fell below 2 per cent.
As a result, the OMERS’ portfolio took a dramatic hit and its actuaries declared the situation had gone from being flush with assets to being dramatically underfunded. Since then the unfunded deficit has grown to $7.3 billion. It is anticipated it will increase to more than $9.7 billion by the end of this year;
Mr. Amorosi downplays all this stating the growing OMERS shortfall is really only “an actuarial deficit.” He claims it will decrease to zero in the next 10 to 15 years. And I’m the Phantom of the Opera
First, he speaks about a provincially approved plan in 2010 for OMERS to deal with the “actuarial deficit” by jacking up the contributions to rebuild the pension investment pool.
That’s a trifle misleading, sir. The taxpayers of Ontario’s municipalities are responsible for any OMERS failure to provide promised benefits. That includes employees past, present and future, not the Province of Ontario.
Municipal employees come and go such as occurs in other employment sources. Regardless there are pension obligations that must be guaranteed by municipal taxpayers. There is growing evidence that this obligation is dramatically increasing staff costs across the province. Salary and benefits increase exponentially along with growth of staff in some communities as their populations grow.
Finally, I am wary of the Municipal Employer Pension Centre that represents municipal pension interests – a creature of the Association of Municipalities of Ontario. Are they advocates for better municipal pensions on behalf of the taxpayers or growing the pension benefits for the employees?
There is growing public concern about the growth of municipal employee benefits.
Guelph has a problem that will be difficult to fix. If it is not brought under control, the future finances of the city will experience a revenue deficit that will be unable to meet the rising costs of staff pensions and benefits.
More on this subject pending