Pensions are sticking points in Canada Post talks

Lockout looms Friday as two sides remain far apart on issue of pensions, with union refusing to accept two-tier model.

Thestar.com
July 6, 2016
By Vanessa Lu

Canada Post is threatening to lock out unionized workers on Friday, as contract talks stall over changes to pensions = a benefit that the union says it will fight to defend.

“We could not be farther apart,” said Canada Post spokesman Jon Hamilton, noting the two sides have not met face-to-face since Canada Day, when the union put forward its latest offer.
Union president Mike Palacek calls that “patently untrue,” saying the two sides met on Monday, and both sides are working with mediators trying to reach a deal.

“Canada Post has not moved on any of the issues,” said Palacek, national president of the Canadian Union of Postal Workers, which represents 50,000 members in both urban and rural units. “But we haven’t been told formally we will be locked out.”

The union believes the company will reduce employee hours, lay people off, cancel vacations and suspend a monthly transfer of $3.5 million in union dues.

“We can see where they are going. They are going to attempt to provoke us,” Palacek said. “We are telling our members not to take the bait, to stand strong. Our goal is to continue service to the public.”

He added that the union would pay out $200 a week in lockout pay to members from its strike fund. Its fund is in the “tens of millions,” and other unions have offered to help out if needed, Palacek added.

Canada Post says it needs to take action, given its biggest e-commerce customers have moved their business to rivals, and parcel and mail volumes have plunged amid the uncertainty.
“In a competitive marketplace, the threat of a strike is just as damaging if not more damaging than an actual strike,” Hamilton said.

The company is promising to cover pay and prescription drugs - but other items including vacation, personal days and short-term disability coverage will be suspended.

At the heart of the battle is the company’s proposal to put future employees on a defined contribution pension plan, instead of the existing defined benefit pension plan, which is indexed for inflation. Two other unions and management have switched for new hires.

“It is fundamentally unjust to have people work side by side, getting wildly different compensation,” said Palacek.

Under a defined benefit pension, employers and employees contribute to a plan, and the worker is guaranteed a fixed payout at retirement, regardless of how pension investments performed or where interest rates stand.

In good times, companies can enjoy surpluses and contribution holidays. In bad times, companies are required to make up the shortfall.

With extremely low interest rates, companies have faced huge shortfalls – with many complaining that they spending too much to prop up their pension plans.

As a result, companies have been moving toward defined contribution plans – where new hires have investment accounts, but the payout at retirement depends on how those investments fare.

Canada Post is in the public sector, and as a crown corporation, it has pushed to turn profits, though the union argues it is not required to do so.

The post office says the corporation is facing huge challenges with its pension plan with a $6.2 billion solvency deficit.

The union challenges that figure saying it is merely a number on paper if the pension is to be terminated, which is not happening. Instead, it notes the pension plan delivered a 7.3 per cent return in 2015, with a $1.2 billion surplus last year.

“The defined benefit plan is very important to members,” said Jo-Ann Hannah, director of pensions and benefits at Unifor, Canada’s biggest private-sector union.

She pointed to a six-week strike in 2014 at Bombardier’s rail plant in Thunder Bay, where members successfully fought against a switch to defined contribution plans for new hires.

“When you start giving up the DB for new hires, you end up with a small, older group of employees in that plan, and a large number of retirees and the new hires don’t care about the DB plan,” she said.
And companies will later push to move all employees into a defined contribution plan, Hannah said.

Back in 2011, Air Canada’s customer service agents were on strike at about the same time as postal workers, who were doing rotating strikes.

In the Air Canada case, arbitrators chose Unifor’s proposal for a hybrid pension - a blend of both defined benefit and defined contribution plans.

That model was also adopted by the Big Three auto companies in the 2012 talks, though General Motors has opposed it and hasn’t hired any new permanent employees to date, she said.

Accounting rules that require publicly traded companies to record pension liabilities on their books have turned up the pressure.

“(Imagine) you are in a particular business. You are trying to run the business at a profit, which will make you as one of the leaders of the business get a bigger bonus, and will make the stock price higher,” said Thomas Levy, senior vice president and chief actuary of The Segal Group.

“Your pension is something you have no control over and can have a significant effect on your profitability and your balance sheet,” he said. “And so you don’t want that.”

Back in the 1990s, companies were losing money making widgets but reporting profits because pension plans were so profitable. “Since 2001 when the tech bubble burst, it’s gone the other way,” Levy said.

Much of the public sector has managed to keep defined benefit plans, partially because it is highly unionized and its influence at election time, Segal said.

“If you’re running for premier of Ontario, you can’t afford to have all of the teachers vote against you,” he said.