Rich pensions for employees of provincial electricity agencies are “not sustainable” and Ontarians may be forced to pay higher hydro prices to subsidize them, a government-commissioned report warns.
The province’s Liberal administration kept the report secret for nearly five months before quietly posting it online Friday before the long weekend.
The review, by pension expert Jim Leech, found that the vast majority of provincial hydro employees contribute less than a quarter of the cost of their defined benefit pensions. Four Crown corporations – and by extension hydro ratepayers – pay the rest of the freight, and are on the hook for any shortfalls.
Mr. Leech wrote that in 2012, the agencies shelled out $365-million in regular pension payments, plus $115-million extra to cover shortfalls. Employees, meanwhile, contributed just $100-million.
Low interest rates and the unpredictability of markets mean that the Ontario government must either reform these pensions or risk having to subsidize them through higher electricity rates or taxpayer bailouts, he wrote.
“It’s at the high end of even the public sector plans in Ontario. They’re pushing the limits,” Mr. Leech, former chief executive officer of the Ontario Teachers’ Pension Plan, said in an interview. “It’s not sustainable the way it is.”
The Liberals are on a mission to cut costs as they wrestle down a $12.5-billion deficit and record-high debt. Finance Minister Charles Sousa commissioned Mr. Leech to examine pensions at Ontario Power Generation, Hydro One, the Independent Electricity System Operator and the Electrical Safety Authority. Between them, these agencies do everything from run nuclear power plants to transmit power to organize the provincial hydro grid.
The report is dated March 18, but was not released until Aug. 1. The government refused to discuss the report in any detail, or explain why it sat on the document until after a provincial election and the legislature had adjourned for the summer.
Mr. Sousa’s office referred questions to Energy Minister Bob Chiarelli, whose staff would not make him available for an interview.
“The government will be reviewing the report in consultation with union representatives to assess the recommendations,” Mr. Chiarelli’s spokeswoman, Beckie Codd-Downey, wrote in an e-mail.
Mr. Sousa has targeted pensions as a place to save money. Last year, he announced reforms at several other provincial pension plans that are designed to lessen the burden on the government to pay for shortfalls.
Hydro has been a sore spot for the government. In December, the Auditor-General revealed that OPG had hired more executives and paid them large bonuses when it was supposed to be cutting costs.
And even by the standards of government pensions, Mr. Leech wrote, the hydro employees’ plans are particularly rich. They are calculated using employees’ three top-earning years. Provincial hydro workers can retire more than a decade early with a full pension. For instance, someone who has been employed since the age of 25 can retire at 54. Those who do retire early also receive “bridge benefits” that provide extra income until they can collect Canada Pension Plan and Old Age Security payments.
Mr. Leech recommends boosting employee pension contributions to 50 per cent, and creating provisions that would shift some of the burden of covering shortfalls onto employees. Under such a scenario, a shortfall would automatically trigger a temporary reduction in benefits or an increase in employee contributions.
Mr. Leech said that when he consulted with the Crown corporations and unions while writing the report, they all seemed to understand that pensions must be overhauled.
“There was a general understanding by all of the parties that things need to happen. “There was a broad agreement that things had to change.”