Public-sector employees in Ontario will have to make higher contributions to their pension plans, have their benefits cut or work longer before they can collect retirement pay, as part of new austerity measures to be unveiled in Tuesday's provincial budget.
The budget will contain the proposed reforms as governments at all levels grapple with massive deficits in their public pension plans, thanks to sluggish investment returns, relatively generous benefits and an aging work force that is retiring in record numbers.
The problem is particularly pressing for Ontario, which is under pressure to persuade credit-rating agencies that it has a credible plan to erase its own deficit, projected to hit $16-billion this year.
The government plans to use the budget to signal to public-sector employees that it is no longer prepared to use taxpayers' money to bail out shortfalls in their pension funds, said a senior government official. The changes would not affect current pensioners, he said.
"We want to put pensions on a sustainable footing for employees themselves and for the two-thirds of Ontarians who do not have a workplace pension," said the official, who asked not to be named.
Three of Ontario's largest public-sector pension plans currently have funding shortfalls. The Ontario Teachers' Pension Plan, the province's largest, had an unfunded liability of $17.2-billion as of Jan. 1, 2011. The liability was eliminated last year.
Many pension plans have responded to their shortfalls by increasing contribution rates for both the province and employees. But in his report on the province's fiscal situation, economist Don Drummond recommended that the province reduce benefits rather than increase contribution rates when faced with a shortfall.
Total pension expenses grew 13 per cent a year on average from fiscal 2006 to fiscal 2011, said the Drummond report. Left unchecked, the report said, pension expenses will triple by fiscal 2018.
Canadian university pension plans have also fallen into a collective hole, with some losing 15 to 30 per cent of their value when markets crashed in 2008.
The budget will recommend pooling some of the university pension plans together under one administrative roof, the government official said.
After the Drummond report was tabled in February, Bonnie Patterson, president of the Council of Ontario Universities, said a working group on university pensions was examining ways to centrally administer the pension plans.
"So for us it's just going to be an issue of how quickly, and what the outcomes of the examination would be," Ms. Patterson said at the time.
The federal government is also expected to make changes to pensions for public servants in its budget on Thursday. Treasury Board President Tony Clement, who led a year-long cost-cutting exercise, has said the government is looking at both public-service pensions and MP pensions as a source of potential savings.
Sources have told The Globe and Mail that Prime Minister Stephen Harper put Conservative MPs on notice that they will have to accept less generous pensions. The sense is that the changes to MP's pensions is a necessary political move if the Conservatives are going to ask public servants to accept changes as well.
With reports from Bill Curry in Ottawa and James Bradshaw and Janet McFarland in Toronto
Editor's note: The Ontario Teachers' Pension Plan had an unfunded liability of $17.2-billion as of Jan. 1, 2011. The liability was eliminated last year. Incorrect information appeared in an earlier version of this story. This online version has been corrected.