Unions dig in on DB pensions

But solidarity weak among younger union members

At the national level, unions in Canada are fighting to protect their pensions, especially defined benefit plans.

According to management-side labour lawyer and negotiator Jamie Knight of Filion, Wakely, Thorup, Angeletti in Toronto, the leadership of the United Steelworkers has been especially active in this regard. “The Steelworkers are strongly encouraging a hard line on defined benefit pensions. They view conversion to defined contribution as a fundamental concession and want it to be a strike issue.”

Things often look different on the shop floor than they do in the arena of public policy debate. Considerations that sway union members, just like voters and shareholders, are often economic. However, the way these issues assert themselves, the way they are seen by individuals, may be quite specific.

At the level of the individual bargaining unit, pensions are best seen as a demographic issue. To a worker who’s 28 years old, retirement is a long way off; he needs cash for his current expenses. Someone who is 53 years old and has had 28 years with a company knows that he will get a lot more benefit from many years of a higher pension contribution than from a couple of years of fatter pay packets.

When union members vote on a bargaining platform or ratify a collective agreement, they are looking at a complete economic package. That package includes wages and premiums and it also includes other types of remuneration (some delayed) that are often confusingly referred to as “benefits” or even “fringe benefits.” Employees of different ages have different worries and demands and react differently to the same package.

With the aging demographic of the Canadian population, this drama is being played out in more and more workplaces as workers preparing for retirement tailor collective agreements to their greatest advantage. Often, this means giving up wages to get stronger pensions.

Perhaps the limiting case is the current collective agreement between Stelco’s Hilton Works and the Steelworkers. It was negotiated in 2002 with only 15 cents in general wage increases (less than one per cent) over four years. The pension plan got the bulk of the increases: $13 per month per year of service to a defined-benefit plan by the end of the agreement (with the basic benefit multiplier going from $45 to $58, a 29-per-cent increase).

However, when one-half of the bargaining unit started retiring over the term of that agreement, they were confronted with a huge pension deficit and drastically reduced benefits. Stelco was in receivership and the pension deficit was identified as a major contributor.

It shouldn’t be a surprise that the Steelworkers are at the forefront of the political campaign for pension reform. They learned the hard way.

Major agreements negotiated in the intervening years have also concentrated on pensions whenever a large part of the bargaining unit was looking forward to retirement. Air Canada employees gave up wage increases and accepted layoffs to buy pension guarantees. Pulp and paper workers in the West increased their individual contributions to the pension plan from three to eight per cent of income and sacrificed their bonus based on the price of newsprint to fund a bridge benefit for early retirement.

The eagerness of bargaining units to accept wage concessions to bolster pension plans, and to go on strike to protect defined benefit plans, may be a result of this demographic split. Bargaining units that are mature due to layoffs or stagnation in hiring or even the age of the facility, will be more solid in their support, but ones where growth or ongoing hiring has resulted in a more representative range of ages may not. Studies show that younger workers prefer defined contribution plans because they think they can invest better than fund managers. Will these younger workers be prepared to walk out on a job over a defined contribution plan whose benefits are 25 or 30 years away?

According to Knight, the ability of the Steelworkers to enforce their no-concession policy will be seen in a couple of ratification votes about to take place as Canadian HR Reporter went to print.

Demographics might also cause internal difficulties at the local level. A few years ago, the Teamster local at milk producer William Neilson in Georgetown, Ont., ratified a collective agreement that gave generous improvements to the pension plan at the expense of wages.

The leaders of the union were older and concerned about their retirements. A couple of years later, the younger members of the unit realized they had been short-changed and succeeded in reopening the contract. They were able to negotiate healthy wage increases. However, the ill will must have remained: the bargaining unit is now represented by the Christian Labour Association of Canada.

Gordon Sova is editor of Canadian HR Reporter’s sister publication CLV Reports, newsletters that report on labour relations. He can be reached at (416) 298-5141 ext. 5129 or [email protected].

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