Windsor Star

CAW paves way for new pension plan reforms

- ELLEN VAN WAGENINGEN evanwageni­ngen@windsorsta­r.com

The Canadian Auto Workers’ agreement to give up half of their guaranteed pension for new hires at the Detroit Three is part of a push by employers away from these plans and toward more retirement uncertaint­y for private sector workers.

Under pressure from Chrysler, Ford and General Motors to end defined benefit plans for new hires, the CAW was at least able to hammer out a compromise, said Jo-Ann Hannah, the union’s director of pensions and benefits.

“I THINK WE’RE GOING TO SEE MORE OF THESE KINDS OF PLANS IN COLLECTIVE BARGAINING.”

FRED VETTESE

New hires, who will also take 10 years to reach the wage level of longer-term Detroit Three workers, will have a hybrid pension plan — the payout for half guaranteed by the employer and the other half based on investment­s chosen by the employee.

A defined benefit plan puts the legal onus on the employer to make sure it is adequately funded and guarantees workers a set pension based on earnings and years of service.

In other private sector workplaces recently, most notably the Royal Bank of Canada, these pensions have been scrapped for new employees in favour of defined contributi­on plans.

The latter shift the risk to employees, who must pick investment­s and then live off the returns when they retire.

Only 16 per cent of private sector workers in Canada have defined benefit plans. By private sector standards, even the half-and-half plan for Detroit Three new hires is decent.

Still, the CAW made the pitch that continuing a pure defined benefit plan with employees contributi­ng (those hired before 2009 don’t contribute) would have been more cost efficient.

But employers want to get the liability of defined pension plans off their books because poor investment returns have left more than half underfunde­d, Hannah said.

So, the CAW proposed the hybrid plan, which is similar to the one it agreed to for Air Canada flight attendants last year.

“The fact that the CAW has gone this way for the Big Three, I think we’re going to see more of these kinds of plans in collective bargaining,” said Fred Vettese, chief actuary with Morneau Shepell.

The half-and-half plan is better than a pure defined contributi­on plan, but it’s expensive to administer and confusing for most average workers to understand, he said.

A better option is a target benefit plan under which employers and employees make fixed contributi­ons aimed at providing a set pension benefit, Vettese said. The level of the benefit can be reduced or the contributi­ons increased if the fund starts to falter.

Currently, such plans are only allowed in Ontario if there are multiple employers involved.

The Internatio­nal Associatio­n of Machinists and Aerospace Workers has members in several such plans, said research director Louis Erlichman. “We do feel a target benefit plan is a better option than a defined contributi­on plan or group RRSP,” he said.

Workers aren’t left on their own to make investment choices and can be represente­d on the board that oversees the plan, which is easier when there’s a union involved.

In Vettese’s opinion legislatio­n making target benefit plans an option for all workplaces can’t come soon enough.

With employers fleeing guaranteed pension plans, workers need other options to save for retirement.

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