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HomeMy WebLinkAboutHR 01-06 REPORT TO COUNCIL 120 Report Number: HR 01-06 Date: February 2, 2006 From: Gillis A. Paterson Director, Corporate Services & Treasurer Baba Gajadharsingh Division Head, Human Resources Subject: Bill 206 - Ontario Municipal Employees Retirement System Act Recommendation: 1. That Report HR 01-06 of the Director, Corporate Services & Treasurer and Division Head, Human Resources be received. 2. That Council support the Association of Municipalities of Ontario (AMO)'s position in opposition to Bill 206, An Act to revise the Ontario Municipal Employees Retirement System Act. 3. That the Resolution attached (see Attachment I) be adopted by Council. Executive Summary: The existing Ontario Municipal Employees Retirement System (OMERS) plan serves approximately 355,000 members including 98,000 retirees and 900 employers with a portfolio of investments valued at $36 billion. Currently the Ontario government appoints members to the OMERS Board and has the final approval on plan design, changes and contribution rates. In June, 2005 the Province of Ontario introduced Bill 206, An Act to revise the Ontario Municipal Employees Retirement System Act. This Bill, among other things, introduces a new governance plan for OMERS as well as Supplemental Pension Plans for Fire, Police and Paramedics. This Bill, with a number of amendments, received second reading in December, 2005 and has been referred back to Standing Committee. Public hearings were held on January 25th and 26th, and Standing Committee commenced clause-by-clause review of the Bill on February 1, 2006. In December, 2005 the Minister of Municipal Affairs and Housing, the Honourable John Gerretsen, sent a letter to the Durham Regional Chair's office providing an update on the status of the Bill (see Attachment II). ~eport HR 01-06 Date: February 2,2006 12Jubject: Bill 206 - Ontario Municipal Employees Retirement System Act Page 2 This Report provides an overview of the Minister's letter, as well as the Bill (as it stands following second reading), AMO's comments on the Bill (see Attachment III) and the Canadian Union of Public Employee's reaction to the Bill. Financial Implications: Currently, OMERS has a significant cost impact on local property taxes of over $450 million which represents between 1 % and 3% of average municipal budgets (source: Ontario Municipal Human Resources Association). The cost of Supplementary Plans would, most certainly, result in significant additional property tax levies to municipalities. Analysis undertaken by AMO, using actuarial estimates developed by OMERS, concluded that the potential cost to municipalities could be as much as $380 million per year. This analysis was achieved with the assistance of one-hundred and twenty municipal treasurers in Ontario. This translates (on average) to an additional property tax increase of 3% for municipalities. In Pickering's case, this would be an increase of approximately $1 million per year. Discussion: OMERS PLAN GOVERNANCE If passed, Bill 206 will change the governance structure of the OMERS Board whereby the Government of Ontario would no longer be the Plan's sponsor. The governance structure of the OMERS Board would change so that the sponsorship would fall to a Sponsors Corporation with equal representatives from employer and employee groups. An Administration Corporation, also with equal representation from employer and employee groups, would assume the core responsibilities currently held by the OMERS Board. The diagram below outlines the current governance structure as well as the proposed governance structure. CORPO227-07/01 Report HR 01-06 Date: February 2, 2006 12'2 Subject: Bill 206 - Ontario Municipal Employees Retirement System Act Page 3 CURRENT STRUCTURE PROPOSED STRUCTURE OMERS BOARD ADMINISTRATION CORPORATION . 6 employer reps. . 6 member reps. (including 1 retiree) . 9 employer reps. . 1 Ontario government rep. ^' . 9 member reps. (including 1 retiree) Ý Oversees plan administration and fund investments Oversees plan administration and fund investments PLAN SPONSOR (Ontario Gov't) SPONSORS CORPORATION Has final approval on plan design & contribution rates . 11 employer reps. . 11 member reps. Appoints members to OMERS Board Responsible for contribution rates plan design & The proposed structure would permit the Sponsors Corporation to make a specified change (i.e. benefit levels or contribution rates) with a two-thirds majority vote. If a proposal receives only a simple majority vote (i.e. fifty-one % in favor) then it could be referred to mediation and binding arbitration. In addition to the contributions paid by both employers and employees to the pension plan, both groups will also be responsible for paying fees to cover costs associated with the mediation and arbitration of a proposed specified change. Given the size of the Sponsors Corporation, it is likely that the need to resort to binding arbitration may occur very frequently. SUPPLEMENTAL PLANS In addition to the traditional OMERS "Primary" Plan (the plan currently in place), Bill 206 requires the establishment of Supplemental Pension Plans. These plans would be stand alone pension plans that are operated by OMERS in conjunction with the Primary Plan. The Bill requires that Supplemental Plans be established by the Sponsors Corporation within 24 months of the date that the Act comes into force to provide Fire, Police and Paramedics with the opportunity to negotiate access to the following benefits at the local level: cORPO227-07/01 123 Report HR 01-06 Date: February 2, 2006 Subject: Bill 206 - Ontario Municipal Employees Retirement System Act Page 4 . 2.33% accrual rate (compared to 2% accrual rate for Primary Plan) . unreduced pension with 80 factor (if age 50 or older) for Normal Retirement Age (NRA) 60 members . unreduced pension with 85 factor (if age 55 or older) for NRA 65 members . 3 or 4 best average years formula (compared to best 5 years for primary plan) . buy-back option (to be paid by plan members) for service before the date that any of the above benefits are made available locally If the Pickering Professional Firefighters' Association (PPFA) wishes to obtain these benefits, they would have to do so through the collective bargaining process and ultimately, through interest arbitration if collective bargaining is unsuccessful. Under the revised Bill, the benefits listed above can only be offered one at a time (i.e. one per collective agreement). Consequently, this may lead to the Association seeking to shorten the terms of collective agreements in order to accelerate its access to additional benefits. The cost of Supplemental Plans are to be shared equally between employers and employees. These costs can be quite substantial. Currently, OMERS is required to provide for solvency funding (the cost to settle the plan benefits if the plan was to be dissolved). Solvency funding requirements can have a significant impact on employer and employee contributions. The Honourable John Gerretsen's letter to the Durham Regional Chair states that correspondence has been issued to OMERS indicating that the Province is prepared to recommend that Supplemental Plans be exempted from solvency funding. This proposed exemption from solvency funding would help to lessen the short term cost of Supplemental Benefits; however, at this point there is no guarantee that this will occur. CANADIAN UNION OF PUBLIC EMPLOYEES (CUPE) Currently, CUPE represents 45% of the OMERS active membership. While CUPE supports OMERS autonomy in principle, they are opposed to the governance model and the Bill's structure around Supplemental Plans. CUPE demands that they have representation on both the Sponsors Corporation and the Administration Corporation that reflects the size of their membership in the plan (45%). Also, CUPE wants immediate access to the same types of Supplemental Benefits that are being prescribed for Fire, Police and Paramedics. The leadership of all CUPE locals met in Toronto on January 25, 2006 to approve an action plan which includes conducting area strike votes to approve a province-wide strike action if the Ontario Government continues to pursue approval of Bill 206 in it is current form. This action plan was approved unanimously by the 450 delegates. Strike votes will be held during the week of February 6, 2006. CUPE will determine by February 10, 2006 whether or not the Ontario Government has met their demands. A cORPO227-07/01 Report H R 01-06 Date: February 2, 2006 124 Subject: Bill 206 - Ontario Municipal Employees Retirement System Act Page 5 further CUPE emergency provincial leadership meeting will be held prior to the implementation of any province-wide strike action. CONCLUSION Bill 206 is very complex and has the potential to impact municipalities significantly through cost, and their ability to control and offer benefits to employees in a fair and equitable manner. The Bill also has the potential to adversely affect every past, present and future member of OMERS. The Province has provided only a narrow window of time, prior to the passage of the Bill, for stakeholders to conduct a thorough analysis of the implications of this legislation and provide their input. We will continue to monitory closely the progress of Bill 206 and provide updates as new developments occur. Attachments: 1. Resolution - Bill 206 - Ontario Municipal Employees Retirement System Act 2. Letter to Roger Anderson from John Gerretsen dated December 20, 2005 3. AMO Alert dated December 15, 2005 Approved I Endorsed By: . --~r----- .~ Gillis A. Paterson Director, Corporate Services & Treasurer Attachments Co : Chief Administrative Officer Recommended for the consideration of Pickering Ci C "I d cORPO227-07/01 125 ATTACHMENT #-L Hf?ú\ Db Bill 206 - Ontario Municipal Employees Retirement System Act WHEREAS the provincial Standing Committee on General Government is currently debating Bill 206, An Act to revise the Ontario Municipal Employees Retirement System Act; and WHEREAS the OMERS pension fund is currently equal to approximately 8% of Ontario's annual GDP; and WHEREAS the OMERS pension fund serves approximately 900 employers and 355,000 diverse employee groups including, current and former employees of municipal governments; school boards; libraries; police and fire departments; children's aid societies; and, electricity distribution companies; and WHEREAS Ontario's municipalities and their employees depend upon the prudent management of the $36 billion plan and to ensure that employees and employers are paying for benefits they can afford; and WHEREAS OMERS employer and employee members are facing an increase in OMERS contributions in 2006 of approximately 9% as a result of a significant deficit in the OMERS fund; and WHEREAS the Bill includes significant, potentially costly and unnecessary changes to the governance structure of OMERS including a Sponsors Corporation structured to be governed by arbitration; and WHEREAS the Bill mandates the creation of expensive Supplementary Plans to provide optional enhanced benefits that will impose new collective bargaining obligations on municipalities, the operating costs of which cannot yet be fully assessed; and WHEREAS the Province has responsibility to study the potential impact of the changes it is proposing and to share the results with employers and employee groups; and WHEREAS AMO and others have urged the government to consider the potential implications of Bill 206 and to ensure the proposed policy changes protect the interests of employers, employees and taxpayers; and WHEREAS the Government is moving in haste with a Bill, which in its current form raises significant technical, public policy and economic issues; Page1 \ ATTACHMENT # -'-- THEREFORE BE IT RESOVLED THAT the Corporation of the City of Pickering does not support Bill 206, and requests that the Government of Ontario reconsider the advisability of proceeding with Bill 206 in its current form; and FURTHER IT BE RESOVLED THAT Dan McTeague, MP Pickering-Scarborough East, Mark Holland, MP Ajax-Pickering, the Honourable John Gerretsen, Minister of Municipal Affairs and Housing, the Honourable Dalton McGuinty, Premier of Ontario, and the Association of Municipalities of Ontario be advised that this Council does not support proposed changes to the OMERS Pension Fund contained in Bill 206. Page2 HR 0\ .06 126 MInister of Municipal Affairs and Housing ATTACHMENT # _?- . Minl5tre des Atfalres mUnlCIPGIGS. ~~JØI. , et du L.ogement ' 777, rue Bay, 1rétago REGION OF DURHA " ~ ~~.o~~6~~8, ~;~~E5 ~)) rç ~ fE D ~ n~:-[D) , Ontario Téléc (416) 585.6470 ~ U;; ~ ï!J ' loWNJ,m8h.aov.on,CA ' , " , , , ". , DEe 3 0 2005 I-\~ OICiJ 127 777 Bay SITae!, 17'" Floor Toronlo ON MSG 26 Tel. (416) 565-7000 F~ (416) 585-6470 lNWI.Y.mah.QOv,on.ca (O5~1436) December 20, 2005 Roger AJ:1derson Chair Regional Municip¡llity of Durhapl " PO Box 623, 605 Rosslarid Road East Whitby, ON L1N 6A3 O~F~ÇE:OF THE REGIONALCHAIB Dear Roger Anderson: .' Re: Hill 206: Ontario MuJ1icipal Emplovees Retirement System Act .., " ' , I am writing to you wirh an update now that I have introduœd Bill 206 into the legislature for second reading. " , . " " , . Many of your submissions indicated a. concern about the potential cost of a.supplemental benefit plan for the police and fire sectors and for paramedics. This is a naturnI concerri.buttþe " government is moving forward to require the implemenlaúon of specific pension benefits because we believe it is important to provide police, fire and paramedic employeesrw:ìththe option [0 bargain locally for these enhancements. We, have also introd~~d~~,nUII1ber¡:of ' , amendmentS at tbe Standing Committee on General Government that should help to COntain the costs of these potential benefits a!ld potential future benefits. Bill 206, if passed, will not impose any new cost or pension benefit on any employer Or employee. It will require thaI the prop!=,sed new Sponsors Corporation set up; within 24 months, a supplemental benefit plan that will include the optional pension benefits outlined in the Bill. Once the supplemental benefit plan is made a""ail~blc, it wiH be up to local grocps of-employees and employers to decide wheÙ1er or Dot they wish to access a new pension benefit. The bill allows for no more than one of the potential new supplemental benefits to be negotiated between individual employer and its employees at a time. With respect to the decision-making and dispute resolution process, the Bill, as amended following first reading, would require that decisions on specific major plan changes, such as changes in benefits or contribution rates, could be approved by a tWo-thirds majority vote of the Sponsors Corporation. This would ensure that there was significant support by both employees and employers. Access to mediation and arbitration with respect to any specified changes in benefiLS would now require majority support by the Sponsors Corporation representatives of both employees and employers. ' /2 13""(001001 58 ATTACH M ENT #2-, TO REPORT # i!.ß_~ i-do - 2- 128 Roger Anderson,Chair Regional Munkipality of Durham The Bill continues to proposethc: requirement of a stability res¿rir~ of ios percent before benefits could be increased and a cap of DoS,per cent for bothernployees and eJIlployers on awaIds arbirraiedforthe Sponso'rs Corporation. " ' "'" , , , This goveI1UI1eIitrecognizes ~at the costs of supplemental benefits, if they'are"subject to.the full , requiremènts of the Pcnsion Benefits Act, such as the solvency:fundiDg requirêmentS,wow,d'þe , quite onerous for both employees and employers. Therefore, in addition to the changes'o'ûUiDe'd above, I am pleased to advise you that the Mirúster of :Finan~c:. h.~.,~s~7qa,~~,~~~.,tPthc ().pt.a.rio , Municipal Employées Retiremenrsyst~in(OME~~)Ïfd~catíIi~tJ]~t;~~.¡~~;'pr~ß~~~, to. ",. " recommend, subjecttocert.àin conditions, that new supplemental benefit plans under OMER5.be exempted from the solvency funding rules through an amendment to the Pension Benefits Aci Regulation. ~tis my.understanding thatOMERS sent,.a:copyof:th.is.letter,to~aÚ,s~eholders. Thisèxèiriptio'jiwoùld ocCur atthe-lime that the plans ore created alidregistered 'v,iitli the P': S ~ pe rirHerip eD t òi F ÎDancìal Se ",ices. This would con lain éOstS åDd\n# š ~i>pli¡';~.f"¡¡ ~enèiï, Is, more affordableforbOrl1emPIOyces'_and,_e~ployers~' '-:,;,-:; .:",:: L_."¡-::' ,j":;:,',',':" -, '. ,," In closing, I would like to clarify that our government,~~~~:<?~,~~:tO',E{o.~i~~~a1!'S~ehoIders with costing information on potential benefit enhancem'ents,aS,omy OMERS maintains d(iw n~cess~ryt,~ ~C?ndu~t Lh~s~ tJ:pes~f ~ctll~~al ~alyseS~Individualmuniç~palities'c:an;,ap?IY the:' " OMERS, àctu3#,~l Astim,ates, to.their specific condilions in'<>rder:to estiÍnåteipqiêritia:Fl°Ca1'costs ' under ,:Various betÍeflL scenarios~~ A number: of stákehoIdëisoha'Íel used:tb~'~(jat¡{az;.d ;h.i~ê'måd~¡ a ' number of assumptions that presume that every municipality will irmnediate!y giye all ~ligiblt: employeegroups,scveraJ expensive benefits. 11#s ailaJysi~åls<óà'pp~~:t~'ì~s~~'tþ~I",,""\"'" - ,,"', ,', "" " ;" ',,' '"":',,,,: '~, ..:, , "-'., ',ö ,,', .'. " employees and 'employers would not make any trade~offs WIlli any oilier salary or benefit ,Items, throughoU,rthc.c9Ilecúve bargain~ngprocess~::" "J_,.':" ;' ," " ,,' "',', '" " " , .. , ", " .., " '- r [rust this infonnation is helpful and I look forward,to receiving further rceqiIDDeD;daÚonsor comments on this important maUer. , " ': ;""";..,, <::,',:';, Sincerely, , , " .. , " John GerrcLSen Minister' , " , '~ " , ': " . :,1 c: " " ", ' ,", Roger Anderson, President, Association of Municipaliti~sof.Ontari¿, ,-', ' , F!ed~iro,Cba.ir, Ontario MuriicipalEtnployees RetirementSystern The Honournble Dwight Duncan, Minister of Finance ", ',"', '"","", "', 59 AMO I OMERS - Bill 206 Receives Second Reading and Heads Back to Standing Comm... Page 1 of 3 129 ATTACHMH'r .3 itf< Oi -oh ¿Rd. À55OCÎalioo of MooÎ<ipalilin of Ontario To the immediate attention of the Clerk and Council December 15, 2005 - Alert 05/092 OMERS - BILL 206 RECEIVES SECOND READING AND HEADS BACK TO STANDING COMMITTEE Issue: Amendments to Bill 206 make some substantive changes to the governance structure, voting and supplemental plans. The Bill has become even less permissive and more costly. (IinktQJhe ëi.mended.....8lll) Action: Municipal governments need to continue the message that neither the Bill nor its amendments have been analyzed for cost impacts and that the Bill is creating a very complex pension plan. The amended Bill has been referred back to Standing Committee for further consideration prior to Third Reading - the dates for which are yet to be confirmed. AMO will prepare a further submission to the Standing Committee and keep members informed of the commentary and amendment requests. Members should take every opportunity inform MPPs and taxpayer groups of the devastating impact that Bill 206 will have on Ontario's communities. Understanding the Amendments to the Bill: At clause-by-clause review there were more than 100 motions for amendments to Bill 206 tabled for review by the Standing Committee members. Some of the most significant Government (i.e., Liberal) proposals that amended the Bill as passed at Second Reading included: . Paramedics- Are included in the meaning of "police and fire sectors" and were not part of our costing. It has also been clarified that civilian officers are included. This will increase costs dramatically. . Supplemental Plans- Supplemental plans shall be provided to police and fire sectors (no longer optional) and paramedics. Bill 206 would now require 4 supplemental plans to be made available for local negotiations within two years of the Act coming into force: 0 2.33 accrual rate for NRA 60 0 unreduced at 80 (if age 50 or older) for NRA60 0 unreduced at 85 (if age 55 or older) for NRA65 0 best 3 years or best 4 years (compared to best 5 years in basic plan) The amended Bill limits the provision of these supplemental plans to one per round of local collective bargaining - which will likely have the unintended affect of reducing the length of contracts to one year. . Funding of rebound costs - assets from the supplemental plan will be transferred to the primary plan to fund liabilities created by supplemental plans. . Cap on Contributions - the 60 months BAE and 0.6% CPP offset limits only apply to the primary plan, not applicable to supplemental plans. . Arbitration Decisions - Prohibits awards that would result in a three year cumulative increase of more than 0.5% of pensionable earnings. . Composition of Sponsors and Administration Corporation(s) - Includes two (2) additional 02/02/2006 AMO I OMERS - Bill 206 Receives Second Reading and Heads Back to Standing Comm... Page 2 of 3 ATTACHMENT #2- TO REPORT#..!i€.ol-Ofo members on the Sponsors Corporation for AMO for a total of 5 appointments on the Sponsors Corporation, and a total of 3 appointments to the Administration Corporation. In addition, AMO will be required to make two appointments to an advisory committee on supplementary plans for the police and fire sectors and 3 appointments to an advisory committee on supplemental benefits for other employees. In total, AMO will be required to make 13 appointments. 130 AMCTO will be provided with a seat as an employee representative on behalf of all management/union exempt OMERS members. . Decision Making - The government has introduced a complicated and unusual new decision making protocol. The Sponsors Corporation may make a specified change (e.g. change to benefits or contribution rates) with an affirmative vote of two-thirds of its members. If a proposal is neither accepted (2/3 majority), nor rejected (simple majority votes against), within a 30-day period, the Sponsors Corporation may, by an affirmative vote of a simple majority of its members (i.e., 50% + 1), refer the proposal to mediation and arbitration. . Solvency - Current pension solvency rules under the Pension Benefits Act (PBA) make supplemental plans considerably more expensive for employers and employees than they would be if the solvency rules did not apply. On December 8, 2005, Finance Minister Dwight Duncan, wrote to the OMERS Board indicating that he is prepared to "... recommend to Cabinet" that new supplemental plans created under Bill 206 be exempted from solvency requirements, through a regulation amendment, under the following conditions: 1. that, subject to the approval of Cabinet, the supplemental plans are prescribed by regulation as jointly sponsored pension plans under the PBA as amended by the Budget Measures Act, 2006 (which passed Third Reading on December 14, 2005.) 2. that, subject to the approval of Cabinet, the supplemental plans will be exempted from coverage under the Pension Benefits Guarantee Fund (PBGF). The plans would not be covered by the fund if the plans were not funded on a solvency basis. 3. that the supplemental plans be created in a way that ensures that, in the event that the plan is wound up, if there are insufficient assets to pay for the accrued benefits, members would only receive benefits to the extent that they are already funded, (i.e., the pension plans will reduce benefits if there are insufficient assets rather than require additional payments by employers or employees.) The difference related to solvency rules is illustrated in the OMERS Board's hypothetical costing analysis. The actuarial consultant hired by OMERS prepared an example of a "Hypothetical Employer" with 1000 employees: 260 NRA60 employees and 740 NRA65 employees. In the "Hypothetical Employer" example, OMERS costs increase from $4.04 million to $5.35 million a year with solvency rules in place - an increase in pension costs of 30%. With an exemption from solvency rules, the same employer's costs would increase about 10%, from $4.04 million to $4.41 million. However, the costing assumed only one supplemental plan per employee group, which is now an unrealistic scenario given the aforementioned amendments to Bill 206 adding paramedics and making a menu of supplemental plans mandatory over time. Although the intent of the Minister's letter is helpful, it provides no guarantee that the solvency exemption will occur. Consequently, it would be irresponsible to consider the cost implications of Bill 206 outside of the current solvency rules. Potential Fiscal Implications: Because there are no guarantees that the solvency rules will be changed, AMO is not in a position to reduce its cost estimates of an average 3% property tax increase or up to $380 million a year. In 02/0212006 AMO I OMERS - Bill 206 Receives Second Reading and Heads Back to Standing Comm... Page 3 of 3 131 ATTACH M ENT # -~._-- TO REPORT # ~g.<;> i . 0 ~ fact, with the addition of paramedics and a new guarantee of additional supplemental benefits, costs could be higher than initially estimated by the more than 120 municipal treasurers in Ontario who undertook a costing analysis on behalf of AMO. Although AMO and others have requested costing information from the Government, the Government has provided no information on costs. In an effort to determine if the government has carried out any cost analysis of Bill 206's original or amended provisions, AMO is proceeding to make an information request under the provisions of the Freedom of Information and Protection of Privacy Act. Summary: While some municipalities, and AMO, were permitted to participate in the Committee hearings, many municipal stakeholders were shut out of the process entirely. More than 160 municipal governments have passed resolutions asking the government to reconsider Bill 206. Instead the government appears to be forging ahead with amendments that ignore the concerns of municipal governments and substantially meet virtually all of the expectations of the police and fire service unions. If Bill 206 becomes law in Ontario, municipal governments will need to prepare for continuing property tax increases and/or significant service reductions to pay for enriched retirement benefits. It is clear that Liberal government is creating its own legacy, akin to the downloading legacy of the Harris government. Municipal governments and their residential and commercial taxpayers deserve nothing but full disclosure of the government's costing analysis as part of their due diligence on this major policy initiative. For more information, contact 416-971-9856: Pat Vanini, Executive Director, at ext. 316 or Brian Rosborough, Director of Policy at ext. 318 Back 02/02/2006