Pen­sion sys­tems threat­ened by global mar­kets

Moose Jaw - - Front Page - By Ron Wal­ter

Em­ploy­ees of Cana­dian Pa­cific Rail­way have been back on the job for a few weeks now, the strike ended by the Harper gov­ern­ment, and an ar­bi­tra­tor ap­pointed to set terms of the new con­tract.

The em­ploy­ees are no doubt un­happy and grumpy and prob­a­bly work­ing to rule. This was the third ma­jor strike ended by Harper gov­ern­ment – the oth­ers were Air Canada and the postal work­ers.

The Harper gov­ern­ment is be­ing painted as unfriendly to labour and unions. Sur­prise, what Con­ser­va­tive gov­ern­ment in Canada has ever been friendly to unions and labour?

The rail­way strike had a num­ber of is­sues, but pen­sions seem to be the over­whelm­ing con­cern for both em­ploy­ees and em­ployer. Other is­sues have less impact on the fu­ture of the com­pany.

Cana­dian Pa­cific Rail­way has 16,000 em­ploy­ees and 18,000 re­tired em­ploy­ees. The cost of pro­vid­ing pen­sions is a huge bur­den and drain on cash, in man­age­ment’s opinion. That partly ex­plains why man­age­ment wants a lower cap on the pen­sions.

An engi­neer can get a $90,000 pen­sion – about 85 per cent of his earn­ings. The CNR has dealt with this is­sue. The same engi­neer with CNR has a $60,000 an­nual cap on pen­sions.

If Cana­dian Pa­cific is ever to get its cost ra­tio com­pet­i­tive with CNR, some­thing has to give with pen­sions. And this rail­way is a high cost rail­way in North Amer­ica.

The pen­sion is­sue goes deeper than just trim­ming costs. If this rail­way isn’t care­ful, pen­sion costs will harm its fu­ture.

We saw the same sce­nario un­fold four years ago when GM, Chrysler and Ford re­struc­tured their pen­sion plans and health ben­e­fits. GM was no longer com­pet­i­tive. The com­pany had to build an ex­tra $1,500 cost into ev­ery ve­hi­cle just to pay for th­ese ben­e­fits. Chrysler and Ford were in the same boat. Ford man­aged without a gov­ern­ment bailout.

Cana­dian Pa­cific with its top heavy pen­sioner to em­ployee ra­tio faces the same fu­ture. And other ma­jor cor­po­ra­tions face the same is­sue,

The ques­tion is how did we get here? Since the 1960s, we have en­joyed rel­a­tively good times. It was easy for pen­sion man­agers to get seven per cent an­nual re­turns in pen­sion funds. Those re­turns sus­tained the pen­sions. Some years were even bet­ter. Some com­pa­nies pulled out the ex­ces­sive re­turns as prof­its.

The sit­u­a­tion has changed al­most 360 de­grees. Peo­ple are liv­ing longer in re­tire­ment. The pen­sion fund must be larger to sus­tain more years.

Near au­to­matic re­turns of seven per cent are no longer avail­able. In­ter­est rates have fallen into two per cent to three per cent ranges. The stock mar­ket is riskier and more volatile than ever.

Pen­sions funds can’t make it any longer. Slash­ing ben­e­fits ap­pears the only way out if busi­nesses are to stay op­er­at­ing. You feel sorry for peo­ple who have worked hard all their lives to find that the golden re­tire­ment egg is lead.

Busi­nesses aren’t the only ones look­ing to cut pen­sion ben­e­fits. A num­ber of U.S. cities and even the State of Cal­i­for­nia with huge pen­sion deficits are mulling over all op­tions.

Com­pound­ing the mat­ter is low wages and ben­e­fits paid to work­ers in China and other such coun­tries. Those wages make them more com­pet­i­tive in the mar­ket with us. The pres­sure is on North Amer­i­can wages and ben­e­fits like pen­sions.

Ron Wal­ter can be reached at ron­joy@sask­

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