outs over pensions, such as Vale-Inco in Sudbury and Electro-Motive Diesel in London. Why are companies going after pensions so aggressively?
This is true, and in fact, we can see statistically that a key story of the past 15 years or so of labour relations (and disputes) has been an accelerating attack on decent and secure (i.e. Defined Benefit) pension plans. Looking even further back historically, what we see is that in North America, workers and their organizations (including both unions and political parties) fought initially for decent and adequate public pensions for all workers. These pressures were resisted, in particular, by capitalist financial institutions (banks, insurance companies, etc) that viewed retirement income as something that could be commodified – by them – and that should be kept in the private sphere. This private model included “securing” pension promises by pre-funding benefits in pooled investment funds that would be invested in financial markets (stocks and bonds, etc). The result in both the US and Canada was a retirement system that included very weak and stingy public pension systems and a large space for private workplace based and individual “supplementary” pensions.
For several decades in the post-war period, decent workplace pensions did get established on this private basis within workplaces that had either strong unions or layers of workers who had individual or social bargaining power or prestige. So, many large manufacturing firms established decent pensions, and so did most public sector employers. But this initial success was highly dependent on some sort of bargaining power – meaning that the majority of North American workers with no union and no other leverage never had the power to insist on pension provision.
When the serious economic crises of the 1970s hit, the momentum for extending pension coverage slowed, and in the years that followed the neoliberal turn, pension coverage came to be viewed as something that employers (including in the public sector) should no longer be obligated to provide. In Canada, private sector employers began closing and converting DB pension arrangements in 1990s, especially in non-unionized sectors. This trend then accelerated after the 2008 Great Financial Crisis, when so many pension funds reported large funding shortfalls (“unfunded liabilities”) due to a combination of the stock market collapse and the improvement in life expectancies.
Over the past 10 years, even unionized private sector companies and public sector employers have been attacking their existing pension arrangements, claiming that they must do this to remain “competitive”. For some private sector employers, and almost all public sector employers, these claims are false and disingenuous — they ignore the fact that so many employers captured huge amounts of pension fund “surplus” in the 1990s and beyond, those good years when financial markets were delivering high rates of return. The “contribution holidays” that employers took with these surpluses were, in many cases, a key contributor to the shortfalls and deficits that emerged more recently. But nearly all employers are nonetheless jumping on the bandwagon of attacking workers pensions, and this is a key aspect of the larger capitalist austerity agenda that is taking away income, security, and leverage, from workers.
While some of this is happening at companies facing financial difficulties (US Steel, Air Canada, Big 3 Auto), it is also happening at highly profitable companies like Vale-Inco (2009-2010), Electro-Motive Diesel-Caterpillar (2012), and now Bombardier. In most cases, these employers don’t have to do this to be profitable — but they know that with the current weakness of labour movements, they can do it successfully and become even more profitable. The transnational companies (like Vale and Caterpillar) involved are doubly empowered by so called “free trade” policies that facilitate their relocation to lower wage zones and also by their enormous size: they can easily absorb the temporary cost of a strike or lockout at an operation representing a small fraction of their overall production.
For trade unions, and in fact for the entire working class, it’s crucial to look closely at the specific way that employers are changing their pensions. The main approach has been to close the existing Defined Benefit pension plan for any new hires. This way, existing workers can be told that *their* plan is protected, and only future workers will be affected. In a context of real wage losses and attacks on health benefits, sick leave, etc., such an assurance can be hard for union bargaining teams to resist. But this is a classic divide and conquer approach because it produces a “two-tier” pension structure into a workplace. Over time, the growing portion of younger workers will realize that they’ve been “sold out” by their own union, if they come to feel that a very inferior pension deal was conceded by “their” union leadership – while they protected themselves from its effects. We should anticipate that such divisions in a union membership will be easily exploited by employers who will be able to play one generation off against another — including using the divide to attack the original, “protected” DB pension plan of the older generation and its retirees. In a larger context of increasing precarious work, part-time work, short-term contracts, and contracted-out employment, we are seeing a real potential for a backlash of younger workers against older workers — a dynamic that will thrill our employers. All unions should be committing themselves, in principle and in practice, to resisting these poisonous “offers” from employers, and fighting for the next generation of workers as hard as we do for the current and the previous generations.
RANKANDFILE.CA: Another type of pension plan that employers are now pushing for is “target benefit” pensions. These were recently implemented in the public sector in New Brunswick. How do they function, and are they good for workers?
Target Benefit (or “TB”) pension plans have existed in a small number of very specific sector for decades, but they have recently been taken up by some governments and employers who see them as an easier ‘sell’ than pure DC plans. If we reject the neoliberal idea that retirement security is something for individuals to worry about — not employers or governments — then TB pension arrangements are not good for workers.
Explaining this, it must be said, is a challenge because of the complicated and technical nature of these alternative pension systems. In the past, TB arrangements were actually established by unions in certain sectors (such as construction trades) where employment is not fixed to one employer that could be counted on to secure a pension plan. These traditional TB plans usually involved negotiating a fixed cents-per-hour contribution to a “pension fund”, and from that pension fund a pension benefit was paid to retired plan members in proportion to the contributions that were made in their name. Unlike a DC plan, and superior to them, these plans would be managed with the aim (or ‘target’) of delivering a steady level of income for life, like a DB plan. However, just like a DC plan, if plan funding and investments go badly, there is no option for obtaining additional funding, and it is legal to actually reduce the benefits payable from a TB plan. In that sense, in both DC and TB plans, the individual worker faces the risks of unfavourable experience – and the employers are relieved of those risks.
The recent implementation of a particular type of TB plan — misleadingly called “shared risk” — in New Brunswick was a significant development that has had implications for pension policy across the country. To understand this story, it’s critical to know the historical context in New Brunswick, which had a number of public sector employers mis-manage and underfund their DB pension arrangements into the ground. That history left the two main hospital pension plans, in particular, deeply underfunded when the 2008-2009 crisis hit hard. The employers were openly musing about simply closing the plans (which would have hurt all plan members, including retirees). In the context of harsh austerity policies and budgetary compression, the funding that these DB plans needed was not coming from the employers. This put the unions in an extremely difficult position, and the end result was a dramatic compromise that involved introducing a new legislative arrangement that allowed these employers to “convert” existing DB pension plans (with secure, promised benefits) to this new TB model under which even already-promised or ‘accrued’ pension benefits can now be legally reduced (but may not be, depending on future investment experience). It’s also significant that these conversions have the effect of eliminating hundreds of millions of dollars in public sector debts from their books – which achieves one of the other goals of austerity minded governments.
This compromise has triggered a serious and still ongoing debate within the labour movement in New Brunswick about these plans and these policies. Even more significantly, it has attracted tremendous positive interest among employers, and especially governments, as a possible alternative model for how to structure the attack on workers’ pensions. For example, in April of this year, the Harper government released a consultation paper that proposes the importation of this New Brunswick style TB pension model into the federal jurisdiction. While they claim that they exclude the federal public service pension plans from this proposal, all public service and public sector workers in the federal jurisdiction (including postal workers) should recognize this as a key new direction for the Harper government’s continuing assault on their own unionized workers. We must not trust their assurances that the public service is not targeted.
I should add here that there are important details in the New Brunswick model that the above summary does not capture. The negotiated deals that were worked out in the two hospital plans, for example, required the employers to bring previously-excluded part-time workers into the new “converted” TB plan. (They previously only had a pure DC plan) This was an important victory, achieved within the context of a larger compromise). These plans also prohibit employer contribution holidays, in the future, which is a good thing. But the price for these achievements was very high, and