All smoke no substance in Canada Post's pension argument

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Canada Post's vigilance in promoting the $6.2 billion solvency cost of its pension plan has created a debate around why a public corporation should be risking so much for workers' retirement.

As contract negotiations continue -- with two near-lockouts already overcome -- labour reporter Teuila Fuatai examines the pension plan debate in detail, and looks at the role of the federal government in removing this obstacle from the bargaining table.

The central argument

Kevin Skerrett, a pension plan expert, is all too familiar with the arguments being traded over CUPW's retirement scheme.

Skerrett, a senior research officer for CUPE, has more than 20 years of experience working on pension plans. Requirements around solvency funding -- cited repeatedly by Canada Post as a justification to weaken CUPW's pension plan in the future -- is something that often comes up during contract negotiations, he says.

While it's not a bad financial measure, it's not really relevant in Canada Post's case, Skerrett says.

Two different funding bases -- the going-concern and solvency measures -- were established when workplace pensions, particularly after WWII, started being introduced in the private, and broader public sector.

Both show how much a business needs to be able to meet the costs of its pension plan, however, the going-concern basis calculates current costs of the plan to a business, while the solvency basis shows how much a business would owe to pension members if it folded, and was forced to wind-up the plan immediately.

Business lifespan is therefore essential in this debate.

As a crown corporation Canada Post, like other government organizations and governments themselves, is relatively secure in its existence, Skerrett says.

Unless it is to be privatized, which the federal government states will not happen, arguing over its solvency deficit of $6.2 billion is moot. Rather, the pension plan's going-concern surplus of $1 billion should be considered. It is a more indicative and accurate measure of the sustainability of the scheme, he says.

Short and long-term outlooks

"The solvency measure was introduced in Ontario in the 1980s… specifically because private companies were going bankrupt, at times, with defined benefit plans in place," Skerrett says.

"In some cases, those defined benefit plans were significantly under-funded, and resulted in workers' not receiving pension benefits they were entitled too."

In the private sector, the lack of guarantee around the continuation of businesses validates the use of the solvency basis for assessing pension plan sustainability, he says.

"Unifor, Steel, UFCW [and] other more private sector unions are quite understandably strong defenders of the solvency funding rules because they really are the basis for protecting the interests of pension plan members, and ensuring that if you're an employer that makes pension promises to people, you have to deliver and you have to set aside enough money."

The policy debate

Pension legislation governs solvency funding requirements for workplace-based pension plans in Canada. Rules differ between provinces, with the federal Pension Benefits Standards Act outlining requirements for federal employers like Canada Post.

"Over the last 10 years, if you were to look across the country, more and more provinces have essentially made changes to their pension legislation to exempt public sector employers from the solvency funding requirement," Skerrett says.

"The logic is that if you're a municipality or a university, or a provincial crown corporation with a long-term mandate, then the risk of your insolvency is very low and you're not likely to be permitted to go bankrupt."

In 2013, the Nova Scotia government passed legislation to exempt all public sector plans from solvency funding requirements. Similarly, two years earlier, it amended rules around solvency funding for universities in the province amidst a labour dispute between Dalhousie University and the faculty association. At the time, Dalhousie University had a solvency deficit of $129 million, which the university said would require dramatic cuts to fund.

"The union said it was ridiculous [as the university was] not about to wind-up," Skerrett recalls.

Other provinces, including Ontario, Saskatchewan, Alberta, British Columbia and Manitoba have implemented pension plan solvency exemptions and relief measures for employers in the public sector, and institutions like universities.

As a federal Crown organization, Canada Post should be exempt from solvency funding requirements, Skerrett says.

"If the federal government would take that step, then [while] the solvency measure might be calculated, it doesn't have to be funded. It literally disappears as a liability or as a cost on the employer."

"What you then do is look at the plan on the long-term going-concern measure, and on that measure, it's actually in surplus, so it's fine," he says.

The road ahead

CUPW president Mike Palecek agrees with Skerrett's analysis, and says the entire solvency test should be reviewed.

"Canada Post should be exempted from the solvency test because as a government organization, it's never going to come into play. At the same time, we'd be open to just fixing the solvency test," Palecek says.

"As it stands right now, it's not a realistic view or realistic estimate of the position of the pension."

Exempting Canada Post would "certainly take the pension plan off the table" and assist in highlighting key issues like gender pay inequity and proposed cuts to postal services currently in play at the table.

Palecek says the union is awaiting response from the Office of the Superintendent of Financial Institution, responsible for the oversight of federally regulated pension plans, on its request that Canada Post be exempted from solvency funding requirements.


Federal labour minister MaryAnn Mihychuk did not respond to requests for comment from rabble.

Teuila Fuatai is a recent transplant to Canada from Auckland, New Zealand. She settled in Toronto in September following a five-month travel stint around the United States. In New Zealand, she worked as a general news reporter for the New Zealand Herald and APNZ News Service for four years after studying accounting, communication and politics at the University of Otago. As a student, she had her own radio show on the local university station and wrote for the student magazine. She is rabble's labour beat reporter this year.

Photo: flickr/Ryan


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