Now that Halloween is safely over, are you ready for the next scary word? Pensions. Those retirement benefits that most in the public sector have, but many in the private sector don’t, are the talk of City Hall these days after a presentation last week alleged the OMERS pension plan will ultimately go broke and stick taxpayers with an unexpected bill for $140 million.
Making the claim was Fair Pensions for All (http://fairpensionsforall.net), a Hamilton-based citizen lobby effort fighting what are called overly-generous benefits in public pension plans, especially the one operated by OMERS of which City of London employees are part.
An OMERS failure, argues founder Bill Tufts in his book Pension Ponzi, could mean a massive depletion of the city’s reserves, much higher property taxes, perhaps even privatization of some city services.
But how likely is it that OMERS — officially it’s the Ontario Municipal Employees Retirement System — will go broke? City staff have been asked to investigate.
What they will find is highly technical and open to interpretation — and probably more confusing than scary. On the surface, though, OMERS with current assets of about $55 billion, is far from broke.
The debt part is where this story gets technical. OMERS doesn’t have a debt in the way you have one on your credit card, or cities have when they borrow to build something. What it does have are obligations to provide retirement income for well-paid municipal workers well into the future.
This obligation is called actuarial debt. A study in 2009, following the market crash a year earlier, showed 70 years from now OMERS would have a $7 billion gap, a number that has since grown to $10 billion.
John Pierce, OMERS’ vice-president of communication, says the actuarial debt is expected to start declining this year in the wake of increased contributions and a reduction in benefits. Currently, he says, investment income generates two-thirds of OMERS revenue.
So, crisis over? Well yes and no.
Public sector entitlements — wages, benefits and pensions — have been out-pacing the private sector and economic growth since the recession, which seems the main focus of Fair Pensions for All. In particular the organization rails against the arbitration system that gives “outrageous” wage increases to police (up 50 per cent since 2002) and fire fighters (up 63 per cent).
London has moved aggressively to curb wage costs everywhere else. Over the past three years, increases have ranged from zero for management to two per cent for unions and the total employee numbers has declined. In fact the city has reduced payroll costs by about $24 million over the past four years.
Still the city will contribute about $19 million to OMERS this year; its 2,800 full-time workers will contribute the same, about 10 per cent of their salary, says Sue Miller, the city’s manager of employee rewards and recognition. For each year of service city retirees are entitled to a pension of two per cent of their 60 best consecutive earning months to a maximum of 70 per cent after 35 years.
OMERS includes London in the Middlesex Region where the average pension last year was $21,488.
Scary? Perhaps not as much as the lobbyists complain, but certainly generous in the 2012 context — and worth keeping an eye on.
Philip McLeod is a longtime London journalist who writes a regular blog on civic affairs. He can be reached at email@example.com.