A Responsible, Respectful and Fair Approach to Public-Sector Compensation
Compensation costs account for more than 50 per cent of Ontario‐funded program spending, either paid directly through the Ontario Public Service (OPS) or as part of the government’s transfer payments to schools, hospitals and other public‐sector partners. All public‐sector partners — including employers and bargaining agents — need to work together to control current and future compensation costs, including wages, benefits and pensions.
Executive and MPP Compensation Restraint
The government has frozen salaries for designated executives at hospitals,
universities, colleges, school boards and provincially owned electricity companies.
All aspects of compensation plans are frozen, and base salaries cannot be increased. In addition, the overall performance pay envelopes at designated employers are frozen. These restraint measures will be in place until the deficit is eliminated in 2017–18. Members of Provincial Parliament will also continue to see their wages frozen — bringing the current total length of the freeze to five years.
Additionally, an advisory panel will be appointed to review compensation practices for senior executives in the broader public sector. The panel’s mandate will include the consideration of hard caps on compensation while recognizing the need to hold senior executives accountable for results. In the hospital sector alone, the government will look to redirect $3.5 million to front line care through actions to manage executive costs.
Bargaining Is Achieving Results and Protecting Services
The government respects collective agreements and the collective bargaining process. The government is not going to override existing collective agreements.
Such actions would not only create significant legal risks, but they would also undermine the ability of responsible employers and bargaining agents to increase productivity, maintain services and ensure fiscal sustainability through respectful bargaining that reflects Ontario’s economic circumstances.
Ontario public‐sector settlements are now below the average of those in the
► The agreement reached with the Association of Management, Administrative and Professional Crown Employees of Ontario (AMAPCEO) includes a two‐year wage freeze and the restructuring of merit pay, short‐term sickness benefits
Ontario Wage Settlements
CHART 1.24
Note:Data are for agreements with over 150 employees, ratified between July 17, 2012 and April 3, 2013.
Source:Ontario Ministry of Government Services.
Per Cent
Ontario Public Sector Ontario Private
Sector Ontario
Municipalities Federal Public Sector (in Ontario) Average Annual Base Wage Increases
► The agreement reached with the Ontario Public Service Employees Union (OPSEU) includes a two‐year wage freeze, a reduction in the entry‐level starting salary in wage grids by three per cent, elimination of termination payments upon retirement for new hires, restructuring of short‐term sickness benefits, and changes to job security provisions. The agreement will avoid costs of $34.1 million in 2013 and $37.4 million in 2014.
In the health sector, the agreement reached between the government and the Ontario Medical Association helps manage health spending. This was achieved through fee reductions and other cost‐saving measures.
In the education sector, the government reached negotiated agreements with the Ontario English Catholic Teachers’ Association (OECTA) as well as with unions representing French teachers, some professionals and some education support staff. The parameters of those agreements formed the basis of contracts across the sector. Since those contracts were put in place, the government has made repairing the relationship with teachers and educational support workers a priority. Over the past weeks, discussions between the Province and education partners have already delivered results for students, parents, teachers and support staff, with the gradual return of extracurricular activities at both elementary and secondary schools.
In late March, the government was able to reach an agreement‐in‐principle with the Ontario Secondary School Teachers’ Federation (OSSTF) that focused on the fair and consistent application of the existing collective agreements, while remaining within the ministry’s funding envelope. The government is also in discussions with the Elementary Teachers’ Federation of Ontario (ETFO).
In the 2012–13 Third Quarter Ontario Finances, the government reported
$1.1 billion in one‐time savings in the education sector associated with reducing liabilities carried by school boards for sick‐day banking and retirement gratuities, and for grandfathering retiree benefits for education‐sector workers. This Budget confirms the $1.1 billion estimate in one‐time savings.
Agreements reached with education‐sector workers included a commitment to establish a working group of education‐sector representatives, the government and experts to explore the creation of one or more province‐wide benefit plan(s) for education‐sector workers. The working group is to complete its work before the next round of collective bargaining in 2014. Depending on the outcome of that work, the government will provide startup funding to support the new benefits plan(s).
The government will continue working with all of its education partners to establish a more effective bargaining process going forward. Part of that process will be informed by a review of collective‐bargaining best practices. In addition, the government will consult with bargaining agents and employer groups across the broader public sector on how best to move towards more efficient and effective bargaining, including the creation of sectoral tables, where appropriate.
Going forward, compensation costs must be addressed within Ontario’s existing fiscal framework, which includes no funding for incremental compensation increases for new collective agreements. The government is confident that broader public sector partners can work together to achieve outcomes that remain within the fiscal plan while protecting services. In future rounds of bargaining, the government is willing to work with employers and bargaining agents to look at mechanisms such as productivity improvements as a way to achieve fiscal and service‐delivery goals.
Public-Sector Defined-Benefit Pension Plans
Pensions are a key part of the total compensation of public‐sector workers.
The government recognizes that pension plans are an important source of predictable retirement income for individuals working in both the public and private sectors, and remains committed to ensuring a modern retirement income system that helps to improve the quality of life for all of Ontario’s seniors.
Many public‐sector pension plans, like their private‐sector counterparts, are facing sustainability challenges. The funded positions of many pension plans have been adversely affected by the current economic environment, particularly low long‐
The government sponsors or provides indirect funding through transfer payments to many public‐sector plans, and a number of the largest plans directly affect the government’s fiscal plan. The Commission on the Reform of Ontario’s Public Services noted that the government’s pension obligations — known as pension expense — had risen significantly in recent years. It projected that, if no action were taken, pension expense would rise by 36 per cent from 2012–13 to 2017–18.
TABLE 1.3 Difference in Projected Pension Expense versus Commission on the Reform of Ontario’s Public Services Forecast
($ Billions)
2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 Commission Forecast 3.1 3.7 3.6 3.7 4.0 4.2 Current Forecast 3.0 3.1 2.6 2.4 2.4 2.4 Difference in Forecast (0.1) (0.6) (1.0) (1.4) (1.6) (1.8)
Note: Numbers may not add due to rounding.
The Commission forecast that pension expense would increase by $1.1 billion over the period from 2012–13 to 2017–18. The current government forecast of pension expense suggests a decline of $0.7 billion over the same period, resulting in a cumulative reduction of $6.5 billion compared to the Commission’s forecast.
This reduction can largely be attributed to the government’s successful efforts to constrain public‐sector wage growth and better‐than‐expected investment performance.
“Currently, pension expense is about two per cent of total program spending growth and is responsible for much of the total increase in program spending….”
Commission on the Reform of Ontario’s Public Services, Public Services for Ontarians: A Path to Sustainability and Excellence, February 2012.
The 2012 Budget announced a number of measures in response to the challenges faced by Ontario’s public‐sector pension plans. These measures built on the Province’s leadership in pension reform and the Commission’s recommendations.
Over the past year, the government has successfully collaborated with its public‐sector partners to make longlasting progress towards achieving its policy objectives. There is, however, more work to be done. The 2013 Budget reaffirms the government’s commitment to build on these successes and work with
interested parties to support pension plan reforms that improve the sustainability and affordability of public‐sector plans.
Difference in Projected Pension Expense versus
Commission on the Reform of Ontario’s Public Services Forecast CHART 1.25
1.0 2.0 3.0 4.0
2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 Commission Forecast Current Forecast
$ Billions
Jointly Sponsored Pension Plans (JSPPs)
Many of Ontario’s largest public‐sectorpension plans are JSPPs. Decisions on benefit levels and contributions are made by representatives of employers and employees. Responsibility for funding shortfalls is shared by employers and plan members. If the joint sponsors cannot reach an agreement on how to address a funding shortfall, the Pension Benefits Act requires that contribution rates increase.
The 2012 Budget noted that contribution rates for many of these plans had risen significantly in response to recent funding challenges. The government announced its intention to consult on a legislative framework that would freeze contribution rates until the deficit is eliminated. During the freeze period, plans that experience new funding shortfalls would be required to reduce future benefits, subject to certain exceptions, instead of raising contribution rates.
After extensive consultations with each of the four JSPPs consolidated in the Province’s financial statements, the sponsors have signed agreements with the government that meet its policy objectives. These agreements freeze contribution rates until the deficit is eliminated in 2017–18 and eliminate the need for
legislation. They also demonstrate the government’s commitment to engaging in constructive dialogue with its public‐sector partners to meet its objectives while balancing the interests of plan members, employers and taxpayers.
The agreements require reductions in future benefits to address new funding shortfalls. Any reductions in future benefits will help mitigate associated growth in pension expense and allow the government to continue to direct funds towards public services for people who rely on them and to eliminate the deficit.
Single-Employer Pension Plans (SEPPs)
Many Ontario public‐sector employees, particularly in the university and electricity sectors, are members of SEPPs. Unlike JSPPs, contributions to these SEPPs are often borne disproportionately by employers. Employers also bear the risk of financing any funding shortfalls as required by the Pension Benefits Act.
In May 2011, the government provided temporary solvency funding relief to public‐sector SEPPs. In exchange for this relief, these SEPPs were expected to negotiate plan changes that would improve sustainability and affordability over the long term. Unless SEPPs can demonstrate progress toward this objective, additional solvency funding relief would be denied.
The government’s temporary solvency funding relief regime has been successful.
Since the announcement of the regime, 17 plans have been granted relief — 15 of them in the university sector.
Funding relief has reduced the solvency payment requirements of these 17 plans by about $240 million annually, thereby protecting jobs and programs. To date, at least 10 plans have successfully negotiated changes resulting in higher member contribution rates and/or reduced benefits for future service.
The 2012 Budget announced that the government would consider additional tools to enhance the sustainability and affordability of public-sector SEPPs, including measures to encourage equal cost- and risk-sharing between employers and plan members.
The government remains committed to ensuring these SEPPs move to equal cost-sharing for ongoing contributions within five years and exploring opportunities to support joint sponsorship as the model for pension plan governance and funding in Ontario’s public sector. To help realize efficiencies in plan administration and support joint sponsorship in the public sector, the government also intends to develop a framework that would, if specified conditions are met, permit the transfer of assets from SEPPs to JSPPs and allow SEPPs to be converted to JSPPs.
The government will also consider regulatory amendments that provide additional relief of solvency funding obligations, for public-sector SEPPs that have taken action to put their plan on a sustainable track, including movement to equal cost-sharing for ongoing contributions.
As announced in the 2012 Budget, the government is moving forward with
The government remains committed to engaging with both employer and labour representatives on the challenges facing electricity sector plans. To that end, the government intends to establish and chair a working group composed of employer and employee representatives to promote a common understanding of the pension challenges in the electricity sector and move towards a more sustainable framework.
The government will also explore whether further legislative amendments may be necessary to transform these plans.
Pooled Asset Management
Ontario’s public-sector institutions administer more than 100 defined-benefit, defined-contribution and hybrid pension plans. With few exceptions, each of these plans procures external investment management services independently, resulting in duplication and higher costs. A pooled asset management framework would allow smaller public-sector pension plans to benefit from the lower investment management costs, improved access to alternative investments and enhanced risk management that larger pension funds typically enjoy.
The 2012 Budget announced the government’s intention to introduce such a pooling framework for public-sector pension plans. The government appointed Bill Morneau as Pension Investment Advisor to consult with interested parties and develop recommendations for consideration. Mr. Morneau estimated that, if fully implemented, savings of $75 million to $100 million annually could be realized.
The government greatly appreciates Mr. Morneau’s recommendations, which were made public in November 2012, and continues to consult on his findings.
Acknowledging the complexity of this undertaking, the government intends to establish a technical working group to advise on the design, governance and transition issues associated with the implementation of a new pooled asset management entity. The working group would report back to the Minister of Finance later this year with a detailed implementation plan.