Unions face challenges in offsetting potential pension losses

Unifor's pension concession to General Motors of Canada continues a trend, proving that the next generation of union employees must brace for a world in which they will shoulder the risk of their company pension plans.

On Tuesday, GM's biggest union announced a tentative contract agreement in which it agreed to switch new employees to a defined-contribution pension plan.

With many corporations seemingly unwilling to bend on the pension reform issue, labour relations experts say union negotiators will have to find new ways to compensate workers who could suffer losses because of a riskier pension structure.

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"I think that it's going to be very difficult, minus a combination of a more concerted effort between unions," said Christo  Aivalis, a professor of Canadian political and labour history at Queen's University in Kingston, Ont.

'Gain benefits on the other side'

"If that's a non-negotiable feature of new agreements for unions — in some cases, that may well be — hopefully they can gain benefits on the other side," said David MacDonald, a senior economist at the Canadian Centre for Policy Alternatives.

"You're going to have to negotiate something else."

And that's exactly what Unifor was able to do during these negotiations, says Jerry Dias, the national president of the union.

Dias said that over the life of the last four-year collective agreement, the car manufacturer had not hired one person, mainly because of its firm position on the defined-benefit pension plan.

The union was instead able to secure other benefits, he said.

"Was it worth it to get new employees the opportunity to get jobs at our wages, at our security level, and give up the [defined-benefit] plan for new starts? The answer is yes," Dias said in an interview with Matt Galloway, host of CBC Toronto's Metro Morning.

Current employees will be able to maintain their defined-benefit pension plans.

Employers seem to be winning the fight over pensions, favouring defined-contribution plans over defined-benefit plans, which the unions prefer. 

Defined-benefit means a retired employee receives a set, or defined, payment while the company administers and invests pension contributions, taking 100 per cent of the risk. In a defined-contribution plan, benefits are determined by how well the plan's investments perform, shifting the risk to employees.

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MacDonald said this could be offset with more job security and higher pay raises that allow workers to save more money. Or the government might have to step in and beef up programs like the Canadian Pension Plan or Old Age Security, he said.

Defined-benefit plans will likely disappear in10-20 years

"It's a clear long-term trend that defined-benefit plans in the private sector are probably going to go to zero in the next 10 to 20 years,"  MacDonald said.

Aivalis agreed that it may be time for the government to pour money into the Canada Pension Plan. He conceded, however, that could require substantial tax increases to ensure that CPP isn't just a tool to avoid abject poverty but provides a decent retirement.

"That could be the model — that move away from employer-centred pensions, either defined benefit or defined contribution, and look at providing a better retirement for all Canadians," he said.

While Aivalis said that unions are being forced to accept these pension reforms, he suggested that union leadership has a responsibility to include younger voices in its decision-making process.

Otherwise, the workers doing the negotiating might be too focused on "protecting what they have for who they have now" and more willing to concede things that may not have an "immediate political consequence for them or for the employer."  

A lack of young worker voices in the bargaining process has, perhaps, led to a downplaying of these intergenerational equity issues, he added.

"More than any kind of malice, it could just be a matter of democratic representation," Aivalis said.

However, Anil Verma, professor of industrial relations at the University of Toronto's Rotman School of Management, suggested the shift to defined-contribution plans could be an opportunity for new employees.

Research shows that employers don't think in terms of wages and pensions, he said. Instead, it's the total labour cost.

"So if they have to pay less on pensions, I would argue it will make them more profitable down the road, which means unions can go back and win either more wages or win more pension contributions," Verma said.

Dias, for example, acknowledged that GM's payments into the new defined-contribution plan will be more than some companies are putting into hybrid plans. 

"So, the door is open, and it's wrong to judge the future of the next 25 years today by [assuming] we'll always be infinitely worse,'" Verma said.