Public sector pensions are one of the factors Ontario is eyeing as it attempts to tackle a $15.3-billion deficit that has left the province’s credit rating under watch.
If no changes are made, the price of Ontario public sector pensions could nearly double between now and 2018, the province said in its budget, tabled yesterday.
“[M]any plans are currently experiencing sustainability challenges, due not only to market forces but also to demographic changes,” the budget states. “With employee contributions in some plans scheduled to increase to more than 13% of salary, many employees have also expressed a desire to limit future contribution increases. Strong action today will limit taxpayer exposure to pension expense, protect priority public services such as healthcare and education, and put pensions on a sustainable track for the future.”
To battle the growing costs, Ontario is proposing a series of legislative amendments to both jointly sponsored pension plans (JSPPs), which account for almost 80% of the province’s pension expense, and single-employer plans, such as those in the university and electricity sectors.
Under the changes, JSPPs in deficit would be required to reduce benefits before increasing employer contributions. As well, in exceptional circumstances, a limit would be set on the amount of benefit reductions that must be made before increased contributions could be considered.
In cases where employee contributions to a JSPP are currently less than employer contributions, increased employee contributions would be available as an option for reducing a pension deficit.
For single-employer public sector plans, Ontario has said it expects them to move to a fifty-fifty cost-sharing formula within five years and will adjust temporary solvency relief measures to encourage such plans to implement the fifty-fifty model.
Finally, to maximize investment returns, the Ontario government will introduce legislation this fall that would pool investment management functions of smaller public sector plans—a framework that would allow the management of assets to be transferred to a new entity or an existing large public sector fund.