Electricity sector pensions expensive: Report

Employee contributions for plan members are generally in the range of 6% to 7% of salary. Compared to Toronto Hydro and other local distribution companies in the municipal sector that are part of OMERS, which offers less generous benefits, employee contributions are currently more than 14% of salary.

“As a result of generous benefits and larger employer contributions these plans are expensive,” notes the report.

Based on the most recent valuation reports filed with the Financial Services Commission of Ontario (FSCO), the employer current service cost represents approximately 18% of payroll for Ontario Power Generation and 19% of payroll for Hydro One. With special payments, employer contributions represent approximately 24% and 27% of payroll, respectively. They are also close to 24% for both the Independent Electricity System Operator (IESO) and Electrical Safety Authority (ESA).

The report also notes that the four plans aren’t sustainable over the long term in their current form and recommends the following changes:

• The employer/employee contribution move to the target of 50/50 on an agreed timeline.
• The parties should establish a ceiling on the contribution rate (current service plus special payments) to be paid by the employer and employees. A suggested appropriate range would be 9% to 12%.
• The four agencies should consider exploring establishment of a cap on pensionable earnings (e.g., exclude bonuses and/or cap pensionable salary) and/or lower the benefit accrual rate for the purpose of the supplementary pension plans.

The provincial government plans to review the report in consultation with union representatives to assess the recommendations.

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