Ontario's hydro pensions unsustainable: Report

Cost-sharing retirement plans could solve solvency concerns
|labour-reporter.com|Last Updated: 08/06/2014

Pensions for Ontario’s hydro agencies are not sustainable, a report revealed on Aug. 1.

Commissioned by the Ministry of Finance and penned by Jim Leech, former chief executive officer of the Ontario Teachers’ Pension Plan, the report warned pension plans for the province’s electricity suppliers are insolvent — which could leave consumers paying higher prices to subsidize the shortfalls.

That includes retirement packages at Hydro One, Ontario Power Generation, the Independent Electricity System Operator and Electrical Safety Authority, where employees have defined benefit pension plans.

In 2012, total contributions for all four plans was approximately $585 million, with slightly more than $100 million of that funded by employees. Not surprisingly, the plans have experienced significant market volatility and have been subjected to growing funding deficit concerns. In 2013, the cumulative unfunded liability for the four groups was approximately $490 million.

As such, Leech suggested the government modify its current pension scheme, lest the burden fall on ratepayers, citing a cost-sharing system as one viable solution.

If employees were forced to contribute 50 per cent of the cost of their pensions, for instance, it would address public concern regarding inflated electricity rates as well as introduce more incentives for both employees and employers to negotiate lower future benefits, if necessary.

While both unions and companies see the need for some form of pension reform and have used the bargaining table as a forum to tackle such revisions, Leech said, on its own, bargaining is not enough to address the concerns.

“The collective bargaining process is not designed for working through complex, technical pension issues that tend to require both long-term timeframes for their resolution and short-term flexibility to deal with economic downturns,” the report reads.

Jointly-sponsored pension plans — wherein cost-sharing begets risk-sharing — tend to be favoured by employers, whereas unions are wont to keep an employer-sponsored model. Regardless, Leech said the move towards a shared plan could be fraught under current conditions, due to the demographics of the bargaining unit, mandates and regulatory frameworks governing the agencies, union membership and contribution rates and plan benefits.

That said, the report indicated the government could reach that 50-50 cost-sharing target in five years. As well, establishing a ceiling for the contribution rates paid by employers and employees could allow funding of any existing deficits by the agencies. Ceilings require reductions in future benefits as opposed to increased contributions in the event of future deficits, the report also noted.

The Liberal government said it will be reviewing the report and consulting with union representatives to assess the recommendations ahead of the next round of collective bargaining.

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