Municipal Affairs and Housing Minister Paul Calandra ordered the review into OMERS in August after multiple associations representing OMERS members wrote to the government urging it to review governance at the $133-billion pension fund.Arlyn McAdorey/The Canadian Press
The Ontario government is launching a governance review of the province’s largest pension fund for municipal employees, responding to pressure from associations representing police and firefighters that complained of a perceived lack of transparency from one of the pension plan’s two boards of directors.
The review will examine how effective the governance model for the Ontario Municipal Employees Retirement System (OMERS) has been. It will also look at decision-making processes, the composition and effectiveness of two separate boards that oversee OMERS, and the level of engagement with employees and employers.
The review was ordered in August by Ontario’s Municipal Affairs and Housing Minister, Paul Calandra, and revealed publicly at an annual update OMERS gave to Toronto city councillors on Wednesday. Over the summer, multiple associations representing OMERS members wrote to the government urging it to review governance at the $133-billion pension fund, which invests on behalf of more than 626,000 Ontario public service workers.
The provincial government plans to appoint a special adviser to carry out the review over the next year, with a similar mandate and focus as the last review of OMERS’s governance, carried out in 2012 by Tony Dean, a former Ontario secretary of the cabinet and head of the Ontario Public Service. The review will not cover the financial sustainability of the plan or OMERS’s investment performance, nor will it revisit the proposed changes to contribution rates.
“The review is designed to strengthen the governance of OMERS to ensure that it is serving the interests of plan members, and that decisions are made transparently for the long-term interests of the plan,” David Wasyluk, a spokesperson for Mr. Calandra, said in an e-mail.
Under a structure set up in 2006, OMERS is governed by two separate boards overseeing two corporations. The Sponsors Corporation (SC) board, which has been the target of pension plan members’ recent complaints, has 14 directors and is responsible for making board appointments, setting benefits and contributions, and monitoring the plan’s long-term health. A separate Administration Corporation (AC) board has 15 members and oversees the fund’s investments, plan valuation and pension administration.
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The requests for a governance review did not raise specific concerns about the AC board, OMERS’s investment performance or the fund’s capacity to pay pensions. OMERS earned an investment return of 8 per cent over the past three years and 7.1 per cent over the past 10 years, and the plan is 98-per-cent funded.
AC board chair George Cooke said in a statement the review is welcome, and good governance practices “include a review from time to time of what is working well, and what could be working better.” SC board chair Barry Brown said the SC board has tried to put the interests of plan members “as a whole” first and foremost.
“In the spirit of continuous improvement, we are committed to fully cooperating with the government in its planned governance review, just as we did in 2012 when the last review was undertaken,” Mr. Brown said in an e-mailed statement.
The flashpoint that sparked the provincial review came over the summer, when associations representing police officers in Ontario felt blindsided by planned changes to contribution rates starting in 2027, according to correspondence reviewed by The Globe and Mail.
Last year, an assessment done by the OMERS SC board concluded that there did not need to be changes to benefits or total contributions to the pension fund. In June, however, that same board approved a reallocation of contribution rates that will require police, firefighters and other employees who earn more than $90,000, as well as some employers, to pay higher contributions – about $15 to $20 more per pay period for most police officers. About 70 per cent of OMERS members will pay the same or lower contribution rates, meaning the total level of contributions to the pension fund won’t change, OMERS said in Wednesday’s presentation.
“It’s about who pays how much,” Joe Pennachetti, a director on the SC board, said at Wednesday’s presentation to city councillors. “A reallocation of rates between classes was required to help ensure that contribution rates continue to be fair and reasonable across all of our diverse group of members.”
The proposed increase to some contribution rates “was unexpectedly revealed to stakeholders at the last moment” before a summer vote, according to a letter that Police Association of Ontario president Mark Baxter and Toronto Police Association president Jon Reid wrote to members, which The Globe reviewed. “We were blindsided by the announcement.”
The two police associations wrote to the Ontario government formally requesting a governance review of OMERS, raising concerns about “an eroding and significantly lacking level of adequate transparency in the decision-making processes within the OMERS SC and its Board of Directors.”
“As it stands, we do not believe the current management of the Sponsors Corporation best serves the interests of our members – and plan members as a whole,” Mr. Baxter said in an e-mailed statement.
Later in June, leaders of the Ontario Professional Fire Fighters Association, the Ontario Association of Chiefs of Police and transit agency Metrolinx each wrote similar letters reviewed by The Globe to Premier Doug Ford, urging the government to launch a governance review.
Other associations representing OMERS members have since weighed in, citing long-standing concerns about governance that preceded this summer’s decision on contribution rates. Mike Major, the executive director of the City of Toronto Administrative, Professional, Supervisory Association (COTAPSA), wrote a letter to Mr. Calandra and Mr. Ford earlier this month emphasizing the association’s “very strong support” for the governance review, and said the current OMERS model is “compromised by undue complexity and expense.”
“We don’t believe the Sponsors Corporation is effective, efficient or fair,” Mr. Major said in an interview. “There’s a better way to do this.”