Ontario taxpayers received a painful dose of honesty from the Ontario Teachers' Pension Plan President and CEO Jim Leech last week as he admitted the funding formula is broken beyond repair and that "revolutionary" changes to pensions are needed.
Leech pointed out that the plan's current formulas were based on a 1970 actuarial report that assumed teachers would work for 27 years and retire for 20. As of 2012 teachers are indeed working for 27 years, but they are retiring for 30.
"There is no defined benefits plan ever conceived that you would draw from much longer than you paid in," he said. "It mathematically doesn't work."
Documents released this month by the OTPP reveal that the fund had a $45.49 billion deficit as of the end of 2011.
"There are now 1.5 working teachers for every retiree," explained Leech. "In 15-20 years it will be 1:1. It was 10:1 in 1970 and 4:1 in 1990. As the signs came in that the assumptions were wrong, the change weren't made."
Leech suggested that solutions might include a change in the indexing of pensions and an adjustment to retirement ages.
The current Ontario budget recommendations make no mention of taxpayer's liability for the fund, or other public sector funds such as the Ontario Municipal Employees Retirement (OMERS) fund, which recently declared their accumulated deficit as $9.2 billion. OMERS members have seen their contributions (matched by taxpayers) increase from 4% in the 1970s and 5.5 – 6.5% from 1978 to 2010, to as high as 14% today.
It is currently estimated that the combined deficit for all taxpayer guaranteed public sector pension plans is more than $300 billion.
This figure is not included in current government debt figures.
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