By Haseena Manek
The Ontario Municipal Employee Retirement System (OMERS) Sponsors Corporation Board of Directors will be voting on whether or not to scrap guaranteed indexing for members in favour of a proposal they call “Shared Risk,” on June 24.
OMERS is a defined benefit plan for about half a million municipal workers in Ontario, including school board and Children’s Aid Society employees, library workers, police, firefighters and paramedics. This is not the first time the plan have tried to push this cut on Ontario workers. In 2018, Rankandfile.ca reported on a previous attempt by the pension fund to push for conditional indexing. The Canadian Union of Public Employees (CUPE) campaigned against this change then, and they are fighting again now.
CUPE members represent 45% of the OMERS pension plan membership. Rankandfile.ca spoke to the CUPE about their current campaign and what this change would mean for Ontario municipal workers.
“It’s really unsettling because our members and our union – as the largest sponsor in the plan – have been clear from the beginning that we are opposed to this change,” said CUPE Ontario President Fred Hahn.
“If they were really there for the plan members,” Hahn continued, “Then [OMERS] would be finding every other option possible before exploring a concession like that.”
What is indexing?
Indexing means that the amount of pension payouts for retired workers increases every year to keep pace with inflation. OMERS has had guaranteed indexing since 1992.
Without indexing, a fixed pension would actually shrink in value over time, as costs increase. This change would come into effect for employees retiring after December 31 2022.
CUPE has been campaigning to push back the vote on indexing since they found out about the “Shared Risk” proposal in February.
“We put very strongly the case to OMERS that it was patently unfair, to have these kinds of changes go forward at this time,” says Hahn. “We also said to them that the pension plans across the country, in fact, around the world, have recognized that the pandemic means that we need to proceed with caution. And now’s not a time to make rash decisions, now’s the time to wait and see.”
It should be noted also that OMERS did not plan to inform sponsors that indexing would be on the table in June, until May of this year. CUPE approached OMERS to specifically ask if indexing was one of the topics that was going to be voted on.
Hahn says once OMERS admitted indexing was one of items being voted on, CUPE immediately spoke up to OMERS and the other sponsors to say the vote should be delayed as the union has not been able to consult with members of the plan due to restrictions on public meetings, which included cancellation of their Annual General Meeting, because of the ongoing COVID-19 pandemic.
“Some of the bigger realities are that members in CUPE are actually on the front lines of this pandemic,” he says. “These are folks who are working in municipalities and emergency care facilities run by municipalities, operating emergency childcare centres, you know, people who work in child welfare, who work in our schools, in transit systems. There’s a series of folks for whom their focus has been working on the frontline and helping Ontario through this global crisis.”
CUPE, along with other unions like OPSEU, ONA and UNIFOR wrote letters to the OMERS Sponsors Corporation Board asking for the vote on such a big benefit cut to be delayed. According to CUPE, 10,000 people wrote letters asking for the vote to be delayed, but OMERS decided to go ahead with the vote in June.
OMERS is a jointly-sponsored pension and employers and workers are meant to have an equal say in governance. As such, the OMERS SC Board of Directors is made up of half worker representatives and half employer representatives.
OMERS’ current system of guaranteed indexation means workers can enjoy a guarantee that their pension will stay consistent throughout their retirement. With a conditional indexing policy, this rate is effectively voted on every year at the same annual meeting coming up in June.
The upcoming vote requires at least a two-thirds majority in order for guaranteed indexing to be cut. So would future annual votes on indexing if the change passes. However, there is an exception to this. A ‘simple majority’ (which is just more than 50%) can refer future indexing decisions to arbitration.
That arbitration process isn’t the normal labour arbitration process either. If the Board cannot agree on an arbitrator, the CEO of OMERS picks one. And the arbitrator decides who gets to make submissions towards the decision. “It’s not the case that everyone gets an equal voice,” said Emily Niles, a pension expert in CUPE’s national office.
“You could easily see that if a two thirds vote isn’t achieved, to cut indexing, a simple majority could just refer to arbitration,” continued Niles. “And that ends up with the same result.”
On top of that, Hahn explains that if the changes passes, there’s no requirement that contribution levels have to be maintained until indexing is restored (as there are in some other pension plans).
“If this were to pass and the decision were to be made to stop indexing, even at 50 percent say, the funding for indexing would also be cut by 50 percent. Meaning if you’re not funding for it, the chance of it coming back to 100 percent is going to be much less.”
Differences and disagreements in labour
The upcoming vote will be the third time in four years that OMERS have tried to scrap guaranteed indexing. This time, the proposal being voted on is called Shared Risk, but CUPE say the moniker is misleading. Scrapping guaranteed indexing is a concession for workers, but there is no corresponding concession to employers. Without indexing, employers actually have to pay less towards their employees’ pensions.
Under the guise of protecting the long-term health of the pension plan, OMERS plan members are being told that this change is a necessary compromise to protect their pensions in the long-term. CUPE disagrees.
“If we believed that this pension plan was somehow in trouble, and that this kind of change was necessary to guarantee the future of the plan, then we would have that difficult conversation with our members,” says Hahn. “Because at the end of the day, their retirement security to have a pension is important. But that’s not the case. It’s just not the case.”
This might be CUPE’s position, but other unions that voted against conditional indexing in 2018 have actually expressed their support for the Shared Risk indexing proposal, including the Police Association of Ontario and the Ontario Professional Fire Fighters Association.
Rob Gascho, President of the Ontario Secondary School Teachers Federation District 24 recently tweeted that “CUPE just has it wrong.”
Hahn’s response is that conditional indexing is not a necessary move to protect pensions. “I have heard other representatives say things like, ‘Well, I want to make sure that there is a pension for my members when they retire’,” he said. “That’s not the debate that we’re having today. This plan is one of the largest plans in the country. It is worth hundreds of billions of dollars.”
“There’s no sharing of any risk here”
According to their publicly available annual report, the OMERS pension plan’s investment portfolio made an 11.9% profit last year, with a five-year average of 8.5%. They report $109B in net assets.
“Yes, there is an economic downturn. Yes, that will be a challenge. We will get through that challenge. The plan is healthy and large and can sustain that. And if there are pressures, they should be shared equally. One of the most insidious things here, is that they have called this round of trying to get rid of indexing, they called it ‘shared risk’. There’s no sharing of any risk here. Employers share zero risk. This is all on current members and future retirees.”
While both the OPFFA’s and the PAO’s public statements say the changes are “necessary to make the Plan more equitable between current and future members,” CUPE say this is the opposite. “It sets up a two-tier system,” says Hahn. “It is just patently unfair.”
As Hahn explained, reps on the employer side of the table at OMERS have been pushing to scrap guaranteed indexing for years, and they are making it increasing difficult for worker sponsors to inform their members on what changes are being voted on. In 2019, OMERS made changes to their bylaws that prevent sponsor representatives from disclosing what will be voted on in the annual meeting, to the sponsors they represent. And now with some unions on the side of employers, CUPE and other pro-indexing unions are facing a tougher fight.
“We’re quite worried,” says Hahn. “So our focus has been on the worker side representatives. On trying to keep people together, on trying to reinforce that this is a concession. If workers stick together, we can defeat it.”
OMERS pension plan members:
Send a letter to the OMERS CEO demanding protection of guaranteed indexing