As Friday's deadline nears for a possible lockout at Canada Post, labour leaders are raising concerns about a key issue in the dispute they fear could spark a domino effect of change in the public sector.
Canada Post has tabled a proposal to close the Crown corporation's traditional definedbenefit pension plan to new hires, shifting them instead into a defined-contribution plan, which is a type of savings plan that does not pay a guaranteed level of pension in retirement.
For labour leaders, who have watched hundreds of privatesector DB pension plans close their doors to new employees in the past two decades, the potential for the trend to move into workplaces in the public sector is raising some alarm bells.
"It would set a huge precedent for Crown corporations and for governments as a whole in terms of how they treat their employees," Canadian Labour Congress president Hassan Yussuff said in an interview Wednesday.
"It is a really important issue because should this CEO succeed at this Crown corporation, what's to stop other CEOs from other Crown corporations from demanding the same thing of their workers, whether they have a [pension] problem or not."
Canada Post has proposed the move as it grapples with a pension solvency shortfall that totalled $6.2-billion at the end of 2015, leaving the plan about 78-per-cent funded on a windup or solvency basis.
Toronto pension lawyer Mitch Frazer, who advises organizations on pension design changes, said he hasn't seen other cases of Crown corporations closing their DB pension plans to new hires, but he has seen a growing number of unionized workplaces in the private sector make the move.
He said the trend is becoming especially common at companies with financial problems or large pension deficits, and the next step in the evolution could see the trend shift to unionized Crown corporations that operate with a more commercial model.
"Other Crown corporations that are supposed to be run as a stand-alone, for-profit entity would definitely look at this and say, 'If things get tighter for us, this may be an area we need to look at,' " Mr. Frazer said.
Until Canada Post tabled its proposal, Canada's public sector has been relatively impervious to the trends of shifting employees into defined-contribution plans. The province of Saskatchewan adopted DC plans for many of its workers in 1977, and New Brunswick introduced a shared-risk model for government pension plans three years ago. But most government plans have either maintained their traditional DB pensions or made less dramatic changes, such as removing the guarantee of full indexing to inflation.
A survey of Canadian pension plans released in June by Aon Hewitt shows 52 per cent of traditional defined-benefit pension plans are still open to all employees, while 33 per cent are closed to new hires and 15 per cent are frozen for all workers.
The survey found little widespread appetite to make further changes.
William da Silva, national retirement practice leader at Aon Hewitt, said the debate at Canada Post is coming as the trend of closing plans to new hires is slowing, with many companies having made the move if they are planning it. Aon Hewitt's survey found that 75 per cent of companies with open plans reported they are not considering making any changes to the model, including shifting new employees into DC plans.
"The DB-DC discussion is an old discussion," Mr. da Silva said. "Those that have elected to stay DB are pretty much in it for the long haul, and they're looking for ways to manage risk and make it viable and sustainable."
Pension consultant Alex Mazer, who works with Ontario's largest public-sector pension plans, argues that experience has shown that closing publicsector plans has not been highly successful.
He said a 2014 study by researchers Robert Brown and Craig McInnes looked at publicsector pension closings and concluded they didn't save costs, and even increased the size of the funding liability. Governments still had to fund shortfalls that existed at the time plans closed, and the liabilities even worsened as a growing portion of employees retired, leaving fewer workers actively funding the plan, the study found.
Mr. Mazer said a federal Crown corporation such as Canada Post should consider less dramatic solutions, such as a jointly sponsored or shared-risk model of pension plan, but added that such changes require long planning, a willingness to compromise and possible legislative amendments - and can be hard to discuss in the heat of a lockout deadline.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.