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HomeMy WebLinkAboutCOD-056-05 Cl~-ilJgton REPORT CORPORATE SERVICES DEPARTMENT Meeting: GENERAL PURPOSE & ADMINISTRATION Date: November 14,2005 Report #: COD-056-05 File#_ ~Y-laW # ~,--c./::fhfJA .{~7'cS Subject: Bill 206 An Act to Revise the Ontario Municipal Retirement System Act Tender CL2005-7, Recommendations: It is respectfully recommended to Council the following: 1. THAT report COD-056-05 be received; 2. THAT the attached AMO suggested resolution be recommended to Council for endorsement with appropriate reference to the Municipality of Clarington FORTHWITH; and 3. THAT the Durham Region Area Municipalities be advised of Council's action. Submitted bya~ Marie Marano, H.B.Sc., C.M.O. Director of Corporate Services Reviewed by: U ~.~~ Franklin Wu, Chief Administrative Officer MM\ca REPORT COD-056-05 Page 2 BACKGROUND AND COMMENT 1. Bill 206 - An Act to Revise the OMERS Act 1.1 Bill 206, An Act to Revise the OMERS Act received First Reading on June 1, 2005. There are public hearings scheduled in November with the Province's standing Committee. The Government's original implementation date was January 2006, and it appears that the legislative process will be aggressive in order to facilitate passage of this legislation as soon as possible. 1.2 The existing OMERS plan serves approximately 355,000 members including 98,000 retirees and 900 employers, with a portfolio of investments at $36 billion. 1.3 The Ontario government appoints the members to the OMERS board and has final approval on plan design, changes and contribution rates under the existing plan. 2. 2.1 3. 3.1 3.2 4. 4.1 4.2 4.3 OMERS Position OMERS has endorsed most of the elements of the legislation with some additional recommended amendments to provide maximum flexibility and autonomy to the OMERS Corporations proposed under the ACT. AMO's Position AMO has a number of concerns regarding the proposed ACT, including the potential for significant costs to be attributed back to the Municipalities, minimum opportunity for input into the proposed changes to the existing system, and the potential for minimal control in areas such as supplemental plan negotiation which will be governed by interest arbitration. AMO has circulated the attached draft resolution which they are strongly encouraging all municipalities to support. It is recommended that the resolution be approved as the Municipality of Clarington's position on Bill 206. Overview of Major Changes from Bill 206 Administration Corporation: The Administration Corporation will be created under this legislation to assume the current OMERS Board responsibilities and act as trustee for the pension funds. It administers retirement compensation arrangements that provide benefits to plan members, and establishes investment policies. It collects fees charged by the Sponsor's Corporation to employer and plan members. It also has the rights and powers of a "natural person". There are also two advisory committees created under this legislation which will provide guidance to the plan member groups - one for general members and another for the safety sector (police and fire). These committees may be discontinued over time. Sponsor's Corporation: The creation of a Sponsor's Corporation will replace the Government of Ontario's current role as plan sponsor with approval rights. The corporation will have the rights and powers of a "natural person". It will determine plan design and set contribution rates to cover its expenses. It can change the plan design through a majority decision and can enter into agreements to permit the Administration Corporation to administer other pension plans with the costs to be paid by the other plan. REPORT COD-056-05 Page 3 4.4 The Sponsor's Corporation has the authority to establish Supplemental Plans, with Administration Corporation being responsible for administration of these plans. 4.5 Supplemental Plans: The current pension plans operate as a "Primary Plan". Bill 206 directs consideration of "Supplemental Plans" for Police and Fire as a separate benefit plan. The supplemental plans offer additional benefits different or beyond the basic plan. Both plans are funded 50/50 by employer and member contributions, however there is a potential for cross subsidization or rebound costs to the primary plan to support the supplemental plan for the police and fire groups. 4.6 The Act provides that employers and local bargaining can negotiate local agreements to provide supplemental plans. The Sponsor's Corporation then establishes a supplemental plan upon request. In Police and Fire sectors, if an agreement is not reached in negotiations, the issue can be referred to interest arbitration. This will result in the potential for municipalities to be ordered to participate in a supplemental plan. Given the tradition of Police and Fire to seek and receive parity through interest arbitration, there is a risk of elaborate benefits awards being ordered on Municipalities, and the creation of different core benefits for Management, CUPE, and Fire members under the same employer. This provision vests significant power in a third-party who's consideration will not be for the impact at the local level. 4.7 There is a limit of .5% financial restriction on the contribution rate for benefit changes on the scope of the arbitrator's authority, however it is only applicable to the Primary Plan, and it is also not cumulative therefore permitting a series of increases. 4.8 Funding: The Sponsor's Corporation has access to two sources of funding; the Administration Corporation will reimburse it from the pension fund for administration expenses and they may also levy a fee for any expenses not related to administering the pension plan. The Administration Corporation will collect this fee and reimburse the Sponsor's Corporation for costs. Employer and Employee contributions are split at 50/50. 4.9 The Administration Corporation collects all fees for both Corporations and reimburses the Sponsor's Corporation for costs incurred. 4.10 Rates: Municipal Finance Officers Association has estimated that the contribution rates will increase approximately 9% due to benefit enhancements, fund administration and costs incurred to support the Sponsor's Corporation. 4.11 There are likely to be ongoing costs associated with negotiations of benefits and general services form employers which will not be shared 50/50 but will likely be attributed directly to the employers. 5. 0 Conclusion and Concerns: 5.1 Bill 206 is complex and has the potential to impact municipalities significantly in cost and the ability to control and offer benefits to employees in a fair and equitable manner. The Province has not provided sufficient opportunity for input from the local stakeholders, and the limited time before passage of the bill has not allowed stakeholders sufficient opportunity to conduct thorough analysis of the impact or implications of this legislation. REPORT COD-056-05 Page 4 5.2 The following points only briefly summarize some of the concerns in the proposed legislation: 1. There may be some risk of a negative impact attached to the OMERS plan members if there are liabilities attached to the administering of other plans by the Administration Corporation. 2. There is a potential for cross subsidization or rebound costs to the primary plan to support the supplemental plan for the police & fire groups. 3. Rates are estimated to increase by 9%, and since the estimates are based on preliminary information, they are subject to change. 4. Fragmented plans and different contribution rates may result for employees within a group if employees change employers since benefits may differ among employers. 5. The Supplemental Plans costing will change as plans evolve, therefore it is difficult to estimate the cost potential or impact to employers. 6. Supplemental plans will lead to higher operating costs. 7. The tradition of Fire receiving parity with Police settlements through interest arbitration, introduces a risk elaborate benefits awards being ordered on Municipalities. It may also create different core benefits within employer groups such as CUPE, Management, and Fire. 8. The ability to award pension benefits through interest arbitration vests significant power in a third-party who's consideration will not be for the impact a the local level. 9. The .5% financial restriction on the contribution rate for benefit changes on the scope of the arbitrator's authority is only applicable to the Primary Plan, and it is also not cumulative therefore permitting a series of increases. 5.3 There are also numerous concerns with the OMERS recommendations to amend the draft legislation which have not been identified here but may compound the impact of this legislation if accepted. The stakeholders have not had sufficient opportunity to consult with OMERS or examine the potential implications in detail. 5.4 Consequently, it is recommended that the AMO resolution which points to significant concern with the legislation and the aggressive time frame for its passage, be endorsed Forthwith as the Municipality of Clarington's position. Attachment: AMO Resolution CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L 1C 3A6 T(905)623-3379 F (905)623-3330 Attachment to Report COD-056-05 -2- Municipal Assistance Needed: Attached is a model resolution that every municipality, which is an OMERS employer, is asked to pass quickly and forward to Minister Gerretsen and their local MPP(s). Model Resolution Re: Bill 206: 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 on 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 would permit 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 a 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; THEREFORE BE IT RESOLVED THAT (Name of municipality) does not support Bill 206, and requests the that the Government of Ontario reconsider the advisability of proceeding with Bill 206 in its current form; and FURTHER IT BE RESOLVED THAT (Name of Local MPP), 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. This information is available in the Policy Issues section of the AMO website at www.amo.on.ca For more information, contact 416-971-9856: Pat Vanini, Executive Director, at ext. 316 or Brian Rosborough, Director of Policy at ext. 318