Shafted

(I wrote this article for Municipal World, June, 2000.  It is an example of how subtle incursions into the usual person's assets have become.  The example is  personal.  The theme is widespread.  In the fall of 2000, I received further 'information' from OMERS in the form of a newsletter.  The tortured logic demonstrated that the objections of members to 'surplus asset disposition plans'  had only caused the OMERS board to paper over its misappropriation of members' assets. If a resourceful, politically significant population of workers can be harmed with impunity, the prospects for others are bleak indeed.)

SHAFTED

I would note that (pension) plans may ... provide benefit upgrades or cash payments to reduce surplus amounts in addition to, or instead of, taking a contribution holiday.

from a letter to Vernon Molloy, July 28, 1999, from Paul Martin, then  Canada's Minister of Finance

In November 1998, a bulletin was mailed to members of the Ontario Municipal Employees Retirement System (OMERS) detailing proposals for the disposal of a substantial fund surplus. The most prominent involved extending a contribution holiday, in effect since Aug 1, 1998, until December 31, 2001. At this time, contributions would increase incrementally year by year, returning to normal in the year 2005.

On April 30, 1999, Municipal Affairs Minister Al Leach announced that the provincial government had approved the OMERS proposal setting out $1.7 billion of pension plan 'improvements'.

On the surface, this appears to be excellent news. It is certainly so for provincial and municipal governments. In fact, it is so good that we need to think about its implications for OMERS pensioners. To be sure, a few bones have been tossed their way: For some 70,000 retirees, there is a guarantee that inflation protection will be 100%; rather than 70%, with ‘ad hoc’ increases whenever funds were available. (Surplus funds have been the norm over the plan’s 35 year history. With inflation between 1% - 3%, and expected to go lower, not much turns on this provision.)

A seemingly more generous benefit has been handed to still working OMERS members. 187,000 contributors will enjoy de facto wage increases of $2000 or more per annum during the contribution holiday. In addition, an enlarged early retirement window will ease 'surplus employee' problems associated with download, downsizing, municipal amalgamations and other recent government initiatives.

Clearly, the real winners in the OMERS sare the provincial and municipal governments. Municipalities will not have to make 'matching contributions' during the contribution holiday period. Municipal budgets had already enjoyed a boost from 1998's contribution holiday. Ontario’s 1200 municipal employers will receive a further windfall of $400 million by December 31, 2001, and declining amounts each year until 2005.

Two blandishments have made this stratagem saleable: the first is the promise that OMERS’ working members would not suffer decreased pensions. Virtual payments would be made by in-lieu contributions from the equity pool in surplus. The second – and more seductive – inducement was the increase in take-home pay made possible by the contribution holiday.

The problem with all of this is that the fund’s $6 billion surplus exists because of the contributions OMERS members (retirees and still working) have been making. The difficulty arises with the proposed treatment of present and future retirees. These are the people responsible for the pool of money that generated the surplus.

It does not matter whether this surplus is due to unexpectedly successful investments by fund managers, some problem with actuarial calculations – as has been stated by the OMERS board – or the fact that wages have not been rising as projected during the last decade.

(This last has translated into reduced pensions ... a strange rationale for further incursions into pensioners' fiscal circumstance!)

What is clear is that the portion of the fund surplus in excess of 10% of projected liabilities should be distributed among the OMERS family. Retirees - present and future - should have their pensions increased. On the now approved OMERS plan, future retirees will join existing with smaller pensions than their joint equity could support.

Presently working members, gleefully planning to spend their ‘contribution holiday’ windfall, will find much of it passed along to provincial and federal tax collectors.

There are other indefensible winners. More highly paid OMERS members (typically administrators) will have contribution holiday funded by the average contributor over the history of the fund. Contribution-driven pensions are fair because recipients contribute commensurately during their working lifetime.

On the OMERS proposal, higher-income members will receive pensions based, in part, on in-lieu contributions from the fund itself.

People entering municipal workforces during the contribution holiday period immediately accumulate unearned benefits. On January, 1999, the Ontario Property Assessment Corporation (a crown corporation) joined OMERS. OPAC employees began a contribution holiday; as did their municipal employers.

This largesse is all being accomplished by a combination of theft from present and future retirees and a stratagem targeting lower and middle income OMERS members in favour of higher.

In defending these undertakings, the OMERS board noted that the Income Tax Act requires a contribution holiday when the “surplus grows to an amount greater than 10% of projected liabilities”. This is not true: The Income Tax Act does not stipulate contribution holidays – benefit upgrades or length-of-service cash payments are equally permissible.

The preferred alternative? Adjust present and projected liabilities (pension payments) until the offending surplus is corrected! A 5% (+ or -) improvement to existing and future pensions would have repaired the 'surplus surplus’ in a morally defensible manner. A 5% improvement to pensions could amount to $100 monthly for the usual retiree. In addition, had contributions continued normally between Aug 1, 1998 and 2005, the increase in pensions might well approach 10%.

There is another dubious element. What has not been admitted, by either OMERS apologists or politicians, is that employers' 'matching contributions' properly belong to OMERS members. These monies are employment costs. They would otherwise have been negotiated into wages and, conceivably, invested as RRSP's, stocks, mutual funds or income-producing property.

Extending the contribution holiday simultaneously to members and municipalities has so distracted OMERS members that they have not noticed that municipalities are reneging on their contractual obligation.

On April 30, 1999, the Province of Ontario sanctioned a regressive, indefensible stratagem which (just coincidentally?) papered over some of the costs of downsizing, downloading and amalgamation legislations.

There are significant winners in this collusion between the OMERS board and the province. They are not whom they appear to be, and they are not whom they should be.