Goodbye, defined benefit pension plan. We hardly knew ya.
The end of defined benefit (DB) pension plans for new hires at GM in Canada is hardly shocking. But what is surprising is the paltry resistance put up by the leadership and membership of Unifor.
Union president Jerry Dias told Canadian HR Reporter not one active member — not one — raised the issue of pensions during the ratifications meeting last month.
“We were the last ones standing,” he said, noting that GM operations around the globe had already shed the DB plan in favour of defined contribution (DC) schemes. (The last contract with GM Canada had a hybrid DC-DB plan for new hires, but the company didn’t hire anyone in the last four years.)
In his last days in office in 2008, former Canadian Auto Workers president Buzz Hargrove called the prospect of changes to pensions “so remote… that it’s not worth speculating on.”
Oh, how the times have changed.
The Great Recession followed by an era of historic low interest rates has made getting a good return on pension investments nearly impossible. DB plans rely on solid, double-digit returns. Otherwise, they wreak havoc on the books of companies and long-term financial planning. Look for Chrysler and Ford to gleefully wind down their hybrid DB plans for new hires as negotiations with Unifor continue based on the pattern set with GM.
Hargrove, for his retired part, still sounds hawkish on pensions. He has a new gig as an educator at Toronto’s Ryerson University, but he hasn’t lost his union soul. Pensions are gone for the autoworkers because of one plain and simple fact — company greed, he said.
“They are making record profits, all three of them,” he told Canadian HR Reporter. “There’s no argument that they can’t afford them.”
Are you listening Ottawa? Did the words of Dias and Hargrove echo in provincial legislatures? Did a head just turn at city hall? Because if the table-banging, line-in-the-sand-drawing union that represents auto workers throws its hands up on pensions when dealing with companies making massive profits — well, there can’t be much life left for the gold-plated public sector plan either in an era of budget deficits and austerity, can there?
Just do the math. GM generated a profit of US$9.7 billion in 2015, and it will never again hire a worker and promise a DB pension. The federal government is projecting a deficit of $5.4 billion in 2016. Ontario will be in the red to the tune of $5.7 billion. Alberta is looking down the barrel of a $10.4-billion deficit.
The Canadian Federation of Independent Business (CFIB) says the unfunded liability for public pension plans across the country is $300 billion. It breaks that math down, showing it “works out to $9,000 for every man, woman and child in Canada.”
Campaigning on reining in public sector compensation and ending the so-called gravy train has always paid dividends for politicians.
Even the Liberals have jumped on that bandwagon. Before being elected, federal Finance Minister Bill Morneau — a pensions expert in his former life — had this to say at a 2013 conference, according to the National Post.
“Who believes that the average Canadian, without a defined benefit plan, and with the demonstrated capacity to save enough to support their retirement, will, over the long term, agree to fund public sector pensions at a level that they can only dream about attaining themselves?”
Never underestimate the power of jealousy. There’s no doubting the defined benefit plan will cease to exist — the question of “if” has long been replaced by a question of “when.”
As a concept, pensions don’t have a long history. The first has generally been credited to Germany’s Otto von Bismarck, who proposed support for older workers. In 1889, the nation unveiled a scheme that provided for those over age 70, which was pretty much the life expectancy at the time.
In the decades that followed, pensions evolved and private sector firms started offering them. After the Second World War, the concept really caught on and defined benefit plans flourished. But the pensions I watched my grandparents and my parents retire on are either long dead or clinging to life support.
Freedom 55 has been replaced with less-zingy marketing slogans such as “How much do I have in my plan?” and “How long do I think I will live?” Workers’ retirement dreams of lazy days on the beach have succumbed to obsessing over asset mixes, lifecycle funds and which fund might have the better rate of return over the next decade.
So, farewell, DB plan. And hello expanded Canada Pension Plan — we’re going to need you now more than ever.
© Copyright Canadian HR Reporter, HAB Press. All rights reserved.