Tuesday, 29 November 2016
The defined benefit pension plan ("DBP") is becoming an endangered species in Canada. In 1977, 48.4% of working men had a defined-benefit pension plan; in 2011, that had dropped to 25.4%. The decline was less dramatic among women, though the percentage started out lower - 34.% of women had a DBP in 1977, which fell to 31.1% in 2011. The fact that more women than men now have DBPs is related to the decline of employment in heavy industry and manufacturing in the private sector, and the generally strong representation of women in the public sector. However, the future even of the previously-sacrosanct public sector defined benefit pension seems to be in question.
As I noted last time, the City of Saskatoon has moved away from a traditional defined benefit plan - one where the employer is ultimately responsible for the pension benefits of retired employees - to a plan with a "cap" on employer and employee contributions. (The ATU has described this as a "defined target" plan; as I mentioned last time, I'm not sure labels matter, but there's no question the changes to the City pension plan are a move away from what has traditionally been described as "defined benefit". It's probably safe to call the new City plan a "defined target" plan. If you don't feel like wandering through my last post, here is a link with some admittedly brief definitions of the different kinds of plans.)
There also appears to be an outstanding grievance filed by ATU regarding the pension plan changes. The Union's offer to settle includes (unsurprisingly) that if the ATU's grievance is successful, then the City would remain responsible for making up any shortfall in the City pension plan. If the grievance fails, then the ATU would, more or less, accept the City's offer regarding the pension plan.
In the meantime, the ATU has commenced an overtime ban to put pressure on the City to settle. We'll have to see how the City responds. A lockout, or partial lockout, may be a possibility; so might a simple "wait-and-see" approach. We'll also have to see where the blame lands - who the public holds accountable for the service disruptions.
And it's been four years since the last contract expired. It appears that defined benefit plans have recovered somewhat since 2012 - see for example this 2014 presentation by the Financial and Consumer Affairs Authority on the recovery of defined benefit plans, or this 2013 article at Benefits Canada. That said, it's possible that part of that recovery is due to increased member contribution rates - and certainly, that's the position the City has taken regarding its pension plan (i.e. that the relative health of the plan now is due to the now-increased contribution rates).
But the City of Saskatoon, obviously, isn't the only employer seeking changes to its defined benefit pension plan. Indeed, the changes the City is seeking are relatively modest, compared to what's going on in other industries. The City of Saskatoon, to be clear, isn't moving to a "defined contribution" plan, nor is it seeking to implement a two-tiered benefit scheme. Therefore, most of what follows is about the general context across Canada - not about the City of Saskatoon specifically.
But when taken in that broader context, perhaps ATU's reluctance to accept changes to the City pension plan makes more sense. That doesn't automatically make them right, and it doesn't mean that their resistance will yield the results they want. But it might make the union's position more understandable.
"Defined benefit" pension plans are one of the current battlegrounds for labour, as unions struggle to maintain existing plans, and employers pursue strategies to change from "defined benefit" to either "defined contribution" or "defined target" pension plans. We saw that in the public sector last summer in the Canada Post negotiations and threatened lockout (where the employer eventually backed down on that issue).
Defined benefit plans are not without their critics, of course. See here for Prof. Michael Armstrong's op-ed on the risks of DBPs - for instance, they're at risk if an employer goes bankrupt, and they tend to penalize workers who change jobs.
In the private sector, the the last round of bargaining (in 2012) between Canadian auto workers and their employers saw the introduction of a "hybrid plan" which had some elements of defined benefit and some of defined contribution. In the latest (2016) round, even that seems to have been negotiated away for new hires in the agreements struck between UNIFOR and General Motors, Ford Canada, and Fiat Chrysler. The existing plan would continue to apply to existing employees, but new hires in the Big Three's Canadian operations would seem to move to a strictly "defined contribution" model - introducing a more stark "two-tiered" model (where newer, younger workers are paid on a lower wage scale, and get fewer/lower benefits, than more senior, older workers).
The defined contribution model involves employees and employers both paying into the plan at set rates, but as with an RRSP, a defined contribution plan's payout is dependent on the market. In other words, there's no guaranteed monthly payment upon retirement, unlike in a defined benefit plan. There's much less security here for the retiree, but also no ongoing risk for the employer. Hence, there is a strong move afoot among many employers to shift from a defined benefit plan (where they must guarantee, wholly or in part, the pension payments) to defined contribution plans (where the risk falls upon the employee).
Sometimes this is pursued wholesale; often, an employer with an existing plan will retain the defined benefit plan for existing workers, but will seek to implement a defined contribution plan for new workers (as with the UNIFOR/GM deal, among many others).
Such changes aren't universally welcomed, of course. In the UNIFOR/GM deal, for instance, the vote by GM workers to accept the new contract - which, in fairness, also guaranteed continued investment in Canadian plants - was successful with a relatively anemic majority of 64.7%. At Fiat Chrysler support was a bit stronger, with 70.1% of workers voting to accept the new contract. Meanwhile at Ford Canada, the deal barely passed with approximately 58% of workers voting to accept. But the contracts were ratified nonetheless; and when the Big Three auto manufacturers, who have historically been part of the "gold standard" for workplace pensions and benefits in the private sector, move away from a defined benefit plan, it's a signal that other plans aren't safe.
The public sector isn't immune to such changes, either. The pension issue is almost certainly going to rear its head at Canada Post in the next couple of years. The federal government has recently introduced legislation that would allow for "defined target" plans; PSAC, at least, has described this move as an "attack" on pensions.
(This is under the leadership of Finance Minister Bill Morneau - the same Bill Morneau, of course, who was a principal of one of Canada's leading human resources consulting firms; who told workers that they should just "get used to" short-term employment; and whose own defined benefit MP pension, provided he's re-elected, seems to be doing just fine, thankyouverymuch.)
Meanwhile other employers - like the City of Saskatoon - in both the private and public sector are seeking to impose caps on employer contributions to a plan. As I mentioned in my last post, that leaves open the possibility of reduced pension benefits for retirees if the plan under-performs. At the same time, the public sector does have a different dynamic than, say, the auto makers, because it's the taxpayers who ultimately are on the hook (though private employers will tend to pass on costs, such as increased pension contributions, to their customers, too).
Unions are often criticized when they agree to move from a defined benefit to defined contribution or defined target plan. Regarding the recent deal between UNIFOR and GM, see here for a general criticism of "concession bargaining" and two-tiered wage and pension structures , here for a more academic Q&A between Andrew Langille and Michael Mac Neil on the issue of two-tiered entitlement schemes, and finally here where the UNIFOR/GM deal is called a "stake through the heart" of company pensions. UNIFOR, in fairness, says that the GM deal (and the others) secures jobs and investment in Canadian plants. Notably, nobody seems to be going after the employers overmuch for aggressively pushing these changes - perhaps because we simply expect employers to act in this manner.
In any event, whether you agree or disagree with ATU's stance, and whether or not the ATU members get what they want in this contract negotiation, it might make more sense when considered in the broader national context - as part of the overall struggle by unions against the decline of the defined benefit pension.