Ontario’s Pension Fund Managers Are Propping up the Fossil Fuel and Real Estate Industries

The Ontario Municipal Employees’ Retirement System, like pension funds everywhere, engages in socially harmful speculation and investment. Pension funds should be paid for by contributions and taxes, not financialization.

BY TOM FRASER

JACOBIN
12.01.2021

The Ontario Municipal Employees’ Retirement System (OMERS) is one of Canada’s largest pension funds. Serving 289,000 municipal workers employed by cities across Ontario, OMERS has net assets of over $105 billion that are intended to support members in their retirement. This year, however, has seen OMERS swamped by numerous scandals.

It is currently in the crosshairs of its largest constituent union, the Ontario chapter of the Canadian Union of Public Employees (CUPE). In May 2021, CUPE Ontario, the public-sector union that represents almost half of the fund’s members, released a report indicting the pension fund for chronic underperformance on its investments. While other large funds managed to navigate 2020 without taking significant hits, OMERS’ asset value contracted by almost 3 percent. Given that OMERS pensions derive 70 percent of their funding from investment returns, this has raised serious concerns for plan members.

CUPE Ontario has been quick to point out that this was also not just a case of one bad year. OMERS has failed to meet its own benchmarks multiple times over the past decade and trailed behind other pension funds of comparable size. The problem is not simply one of flagging returns on investment. OMERS, like other Canadian pension funds, is deeply implicated in fossil fuel investments and the financialization of what should be social goods. The consequence of these investment decisions is that pension funds often inadvertently harm the people they exist to serve — working members dependent on public services and planning for a secure retirement.

You Work for Your Pension, Your Pension Does Not Work for You

CUPE Ontario has been calling for increased transparency and an independent review of OMERS’ investment choices. Thus far, the pension fund’s only response has been to release midyear returns in an effort to prove that they are becoming more reliable money managers.

OMERS also finds itself in conflict with CUPE Ontario over early retirement options for paramedics. As workers in a high-risk job, Ontario paramedics feel that they should have the option to retire five years early without a reduced pension — an option already available to police officers and firefighters.

OMERS’ reluctance to recognize this — and, therefore, its implicit insistence that paramedic benefits be reduced — has resulted in a court case between the pension plan and the union. The retirement fund is desperate to minimize its obligations to give its members a comfortable retirement.

All this comes just a year after the OMERS board voted to remove the indexing guarantee on pensions after 2022, meaning that any payouts of savings after that point would not necessarily be linked to cost-of-living increases. This move is almost certain to restrict benefits going forward. Between the paramedics and cost-of-living indexing, OMERS seems to be doing all it can to minimize benefits.

OMERS’ incapacity to maintain full-funding levels and its efforts to reduce its payment obligations stand in extremely uncomfortable tension with the social corrosiveness of its investment choices. An examination of its investments reveals a panoply of socially harmful acquisition and speculation.

Pension Fund Capitalism

While neoliberal governments have pursued privatization agendas through direct sales and public-private partnerships, OMERS has built up an astonishing infrastructure portfolio. The fund has a startling geographic reach. From port facilities in the United Kingdom to toll roads in India, from electrical grids in Australia to public elementary schools in Nova Scotia, OMERS’ tentacles stretch worldwide. For the pension fund, critical utilities, vital for the day-to-day functioning of society, are reduced solely to items on a balance sheet — assets to flesh out portfolios.

Nonrenewable energy infrastructure forms a significant portion of OMERS’ holdings. In 2018, it spent over $1.4 billion to buy a 50 percent stake in BridgeTex, a crude oil pipeline linking West Texas to the Gulf Coast. A year before that, it bought a 34 percent share in GNL Quintero, the largest natural gas terminal in Chile. The climate catastrophe means little to an infrastructure division that describes itself as being “singularly focused” on expanding its inventory.

OMERS’ vast real estate holdings are managed by its subsidiary corporation Oxford Properties. With assets north of $60 billion, Oxford is an active player in the luxury real estate market in cities as far apart as Toronto and Sydney. Ontario’s municipal workers are the owners of high-end retail strips and office complexes in London, Paris, Berlin, and elsewhere. OMERS has ensured that municipal workers are — often unwittingly — complicit in global gentrification.

Through Oxford, OMERS is the 50 percent owner of Hudson Yards, the multibillion dollar real estate megaproject on Manhattan’s far West Side. The largest private development in US history, Hudson Yards is an astonishing monument to real estate finance, and only one of multiple OMERS-owned properties peppering the New York City luxury real estate landscape. In mid-September, OMERS and its partners at the Canadian Pension Plan sold St John’s Terminal in SoHo to Google for over $2 billion. In the global game of hyperfinancialized real estate capitalism, pension funds have become critical players, and few have done so as voraciously as OMERS.

The retirement savings of hundreds of thousands of Ontario workers depend upon ecological devastation, privatized critical infrastructure, and luxury real estate. As the necessities of everyday life have become a fertile soil for profit, pension funds have excitedly started grubbing about in these burgeoning gardens of lucre.

“Fiduciary Duty” Was Devised by Gordon Gekko

The financialized pension system is based on the Faustian bargain that potential yields to plan beneficiaries justify the wider social consequences of fund manager’s investment decisions. The gospel of “fiduciary duty,” enshrined in legislation and held aloft by financial managers, supposedly guarantees that the needs of retirees are put front and center by pension investors. So then, why is it that OMERS is yielding terrible returns, cutting benefits, and attempting to limit plan eligibility?

In its current form, the pension system does not work for its members — it works for the financial sector. Before all else, retirement savings are investment capital. Their function as old-age support is unimportant compared to their role as an engine of the global financial system. The less a fund is obligated to pay out as benefits, the more it can funnel back its resources into capital markets. Pension funds are growing to obscene sizes — Canada’s public plans have total assets of over $1.5 trillion — while retirement remains out of reach for most.

The Faustian bargain, then, seems to be predicated on a lie. Many workers do not enjoy the benefits of their pension fund’s enormous portfolios, and OMERS sidelines members while also doing significant social damage. A recent Canadian Centre for Policy Alternatives report shows that the Canadian Pension Plan Investment Board, one of the country’s largest pension funds, has flagrantly ignored demands for divestment. The Canadian Pension Plan, according to the report, has billions invested in the fossil fuel industry. And yet the fund’s benefits remain woefully insufficient for retirees hoping to live off of them. Such investments would be basically impossible to justify, even if their end result was a decent retirement for members — and they can’t even offer that.

In the hopes of protecting the retirement savings of their members, CUPE Ontario has launched a campaign calling for greater accountability and transparency at OMERS. But to “fix OMERS” — in the parlance of the campaign — would require a significant transformation of the Canadian pension system. The 2008 economic crash demonstrated the structural precariousness of financialized retirement, and nothing has been done since to fix the problem. So long as retirement is embedded in finance, both retirees and the greater public will have to deal with the consequences. The former through insufficient benefits, the latter through bearing the brunt of investment choices.

What, then, is to be done? First, the public pension system needs to be fully funded through a combination of contributions and taxation. Second, members should have democratic control over work-based pensions such as OMERS, and they should be primarily funded through increased employer contributions. Third, and most importantly, unions fighting to fix the pension system must fight for universal public housing, pharmacare, dental care, and long-term care provision.

As things stand, pension funds actively contribute to the commodification of necessities through their investments in things like real estate. A large pension — one which therefore relies upon massive investment returns — is only necessary so long as the cost of a comfortable retirement remains expensive. In order to definancialize pensions, we must also decommodify the necessities of everyday life.

ABOUT THE AUTHOR
Tom Fraser is a writer based in Toronto. He researches public sector pensions at Concordia University as an affiliate of the project Deindustrialization and the Politics of Our Time.