Union-managed benefits plans can be ‘tricky territory’ in public sector: Union
A high school teachers’ union in Ontario involved in a dispute with the provincial government says it could save the province money by taking over teachers’ benefits plans.
The Ontario Secondary School Teachers’ Federation (OSSTF) claims that, by taking over its members’ benefits plans, it will save the province $419 million in unfunded liability and end a standoff between the union and province over Bill 115, a new piece of anti-strike legislation.
This would be a first for educators in the province, but it’s not an unusual move in other sectors.
In the power industry, for example, where there is more casual or intermittent work based on peak periods, some unions administer their own benefits plans to offer continuity between employers.
That’s the case at Ontario Power Generation where 90 per cent of the staff is unionized. Professionals and some line management staff are represented by the Society of Energy Professionals while skilled trades and administrators are members of the Power Workers’ Union (PWU). Both unions offer their own benefits plans.
Unions often have the purchasing power or “clout” to do as well as their employer when it comes to getting a good rate of return, says PWU spokesman John Sprackett.
Union-managed benefits plans can save employers administrative costs, especially in industries with on-again, off-again employment or in small and medium-sized businesses where the cost of managing a benefits plan is prohibitive, Sprackett says.
Some businesses with a “lifespan” also find it more economical to turn over benefits management to unions, says Sprackett.
“In a business plan that only has a 20-year life cycle, for example, there won’t be generation after generation of workers to support the plan,” he says, adding union-managed plans can also enhance the profile of an employer that may not otherwise offer a benefits plan.
But there are risks, he adds. One of the biggest challenges for unions running their own benefits plans is the nature of the membership, he says.
“You have to be careful because the amount of contributions is typically controlled by members,” Sprackett says. “It means getting good advice about revenue to liability ratios.”
Loyalty can also be an issue for employers, he adds. While offering a benefits package — regardless of who provides it — may make an employer more attractive, employees’ loyalty may fall more with the union than the employer over time.
“Typically, the employer wants the loyalty that comes with pension and benefits arrangements,” he says.
The United Steelworkers (USW) also manages benefits for thousands of workers. It’s handled through a trusted benefit plan administered by a third party.
The plan has proven to be successful with smaller employers, who can’t afford to manage the plan themselves, and with larger employers who have a plan but say it’s costing too much, according to Charles Campbell, research director at USW Canada.
In the case of the latter, the union and employer compare plans and, in some cases, move under a USW plan.
“It depends a lot on the particular circumstances,” Campbell says. “It’s something that is particular to a certain group rather than an off-the-shelf plan.”
But the USW doesn’t specifically go looking for opportunities to take over benefits plans because of their complexity, he adds.
“It’s not something we try to move on, but if a company says we can’t afford benefits or there are no benefits already, we’ll give it a try,” he says.
There are no additional costs to employers when the union runs the plans, he says. They simply tell the union what they’re willing to pay and the union provides it.
However, it can be challenging for the union particularly because some costs, such as the price of drugs, are out of their control, Campbell says.
At PWU, after more than 30 years of managing benefits plans, the union has become skilled at estimating plan usage and finding the best rates of return, Sprackett says.
While he doesn’t want to comment on the situation involving the OSSTF, he says unions need to consider the financial status of their members’ benefits plans before deciding to take them over, especially in difficult economic times.
Employers may have already taken surpluses out of the pension plan or taken contribution holidays, he says.
More unions may move in this direction for practical reasons, Sprackett predicts, but he cautions that it is “tricky territory,” especially in the public sector where there is potential for political involvement as well.
