Canadian HR Reporter

CANADIAN HR REPORTER October 17, 2016 6 NEWS would play hardball, he said. "It's clear that GM was planning on closing Oshawa in 2019, so our members understood completely what was at play and the ratifica- tion numbers showed that." And while losing workers' DB plans was tough, not many union members were concerned, he said. "Not one active member raised (the issue during ratifications meetings)." "We were the last one stand- ing," said Dias, adding all other GM pensions in the world have already moved to defined contri- bution (DC) plans. "General Motors has been very specific since their bankruptcy in 2009 — if they went through com- plete bankruptcy here in Canada, our current retirees' benefits would have been reduced about 61 per cent," he said. Unifor workers secured them- selves a future, said Dias. "All in all, people are feeling great that there is finally going to be some stability in the GM chain here in Canada." The trend is ongoing, said Kristin Dziczek, director of the industry, labour and economics group at the Center for Automo- tive Research (CAR) in Ann Ar- bor, Mich. "What ended up happening at GM in the U.S., there were 10 retirees for every one person working in the plants, so it's hard to continue to fund an ongoing li- ability on the backs of one-tenth," she said. In a risk-averse industry such as auto manufacturing, many com- panies are trying to get out of the retirement funding business, said Dziczek. "ere's a ton of risk in the auto industry: Say the auto industry was healthy and fine but then the banks collapsed and you don't have anybody to fund (you)." By moving toward DC plans, "you are shifting that risk to your workers," said Dziczek. Still, Unifor managed to win some battles, she said. "It's a thing that was going to happen to the auto industry one day or another but it was absolute- ly critical to securing investment in Canada this round." However, Buzz Hargrove, co- director of the Centre for Labour Management Relations at the Ted Rogers School of Management at Ryerson University in Toronto, said the automakers could afford to continue with a DB plan and chose not to. "It's just greed. ey are mak- ing record profits, all three of them. ere's no argument that they can't afford them, but the union couldn't afford a strike," said Hargrove, former head of the Canadian Auto Workers (CAW) union. Continuing trend e GM deal continues a trend that has seen many companies switching from offering DB plans that promise a retirement wage for workers out of a managed pension fund, to DC plans where companies pay into a plan on be- half of workers. "From the employer's perspec- tive, the problem with defined benefit plans is they have a long- term liability that goes not only the entire person's career, but beyond their retirement," said Christo Aivalis, adjunct professor of Canadian political and labour history at Queen's University in Kingston, Ont. "In a defined benefit plan, the potential is the fund underper- forms, or if more people are re- tiring at a certain point, the fund doesn't have a lot of money, there could be issues around solvency." Benefit payouts are based on a formula that was negotiated in the past, said Joseph Gabriel, staff actuary at the Canadian Institute of Actuaries (CIA) in Toronto. "Regardless of what happens in the future, your pension benefit, there is some kind of guarantee attached to it." Once the payouts are fully ac- crued to a retired worker, it can- not be changed, he said. And pensions are highly regulated in Canada so any changes must be approved by the provincial or federal regulator. A big part of the blame for the decline in pension plans is the current climate of low interest rates, said Gabriel. Because pen- sion funds must reflect members' risk tolerance, fund managers are legally bound to invest in bonds and other low-risk vehicles. "Everything mostly relies on in- vestment returns so when returns are low, the costs of these plans are very high," said Gabriel. "Solvency was never an issue 15 to 20 years ago because interest rates were very high." Two major risks are borne by the employer when it comes to DB plans: return on investment and mortality, he said, and many people are living longer. "Everything started to go awry when interest rates started to fall," he said. "With low interest rates, the cost is high, and there's no in- dication these rates will go up." While private sector unions may be giving in on DB pensions, it's a different story with public sector workers, say the experts. "ere's been a stronger, more effective resistance to a two-tiered model," said Aivalis, pointing to the size of governments and their ability to raise money via taxes. But not all public sector unions can hope to win the battle, he said. "at could be the danger to public sector unions is that the trend from bargaining within the private sector is affecting them," said Aivalis. "We could see another battle about two-tier pensions." He pointed to the recent deal signed with Canada Post and its union, where a two-year collec- tive agreement became a stopgap measure. "A lot of those issues might be deferred until the next round," said Aivalis. Public sector pension plans are underperforming, according to the Fraser Institute. "A lot of these government pensions are making promises to deliver benefits in retirement for their workers and they are cur- rently unfunded under current actuarial conditions," said Charles Lammam, director of fiscal stud- ies at the Vancouver-based think tank. Whereas in the private sec- tor, a lot of companies are "mak- ing tough decisions, adjusting to the new reality," said Lammam, it is starkly different in the pub- lic sector. "e two sectors are clearly operating under different constraints." Lammam referenced Fraser Institute studies that found 94 per cent of public sector workers are covered by DB pensions com- pared to the private sector. "e government operates in a very different economic environ- ment: ey are monopoly provid- ers whereas in the private sector, they have competitive discipline that requires them to respond to these economic conditions," said Lammam. At least every three years, pri- vate sector pension funds have to be evaluated based on current conditions, said Gabriel. "They still have to fund any deficit that would hypothetically be present should the company shut down." With a defined benefit plan, "contributions are very volatile" and employers don't like volatility, so that is another reason many are scrapping them, he said. e overall makeup of the la- bour force is contributing to the pressure to eliminate strong pen- sion plans, said Aivalis. "e general trend is toward defined contribution and, in many cases, there won't be pensions for a lot of people because we are seeing an increasing amount of part-time and casual and contract work, which often lacks a pension scheme." e collapse of defined bene- fits has been happening for some time in Canada, according to John Mortimer, president of the Cana- dian LabourWatch Association in Vancouver, who worked as the HR head at Wendy's in Canada when it implemented a DC plan. "e reality in the private sector has been oriented toward defined contributions at least back to the 1980s," said Mortimer. "Defined contributions has been the way for decades." A lot of the plans may end up being bailed out by taxpayers, said Mortimer. "ere are major unions that run their own plans and they are absolutely under water and they are looking at bailouts from gov- ernment or legislative changes to deal with the reality that there is no free lunch on any pension plan." But by bringing in a new plan for new workers, GM is risking a situation that may breed inequal- ity, said Aivalis. "It creates issues around equity and solidarity with younger work- ers who will be coming into GM and other auto factories and es- sentially doing the same work for lesser value." In the current landscape, companies are not taking care of workers in a gold-plated fashion as before. "We could explore — much like Medicare — decoupling the idea of retirement from employment (of a specific employer)," he said. 'We could see another battle over 2-tier pensions' GM < pg. 1 "A lot of these government pensions are making promises to deliver benefits in retirement for their workers, and they are currently underfunded." Credit: Rebecca Cook (Reuters) Fiat Chrysler Automobiles (FCA) CEO Sergio Marchionne (left) sits with Unifor union president Jerry Dias during the production launch of the 2017 Chrysler Pacifica minivan at the assembly plant in Windsor, Ont., on May 6.

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