June 17, 2011
Air Canada has reached a tentative labour pact that ends a three-day strike and sends a contentious pension dispute to arbitration, putting a spotlight on the struggles of Canadian companies to rein in escalating retirement costs.
Traditional defined-benefit pension plans are increasingly coming under fire as companies face funding shortfalls during a long era of low interest rates, and this is expected to be an issue in other labour talks.
Mitch Frazer said the wave of companies seeking pension concessions has escalated since workers at Vale SA’s former Inco operations in Sudbury agreed to let the company close their defined-benefit pension plan to new hires last July following a bitter year-long strike.
For mature companies with large numbers of retirees compared to active workers, Inco was seen as a turning point where a previously unassailable plan was modified despite a strong union environment. "Sudbury emboldened a lot of companies," Mitch said.
Pension plans are also under attack because the costs for many companies have not levelled off despite a broader recovery in the economy since 2009. Companies are still grappling with significant obligations to put more cash into their pension plans because low interest rates have reduced plan returns while simultaneously boosting the value of pension obligations on the other side of the balance sheet.
Mitch also said firms are as upset about the volatility as the cost, because it makes long-term planning difficult and requires large cash payments “at the worst possible times” when businesses are at their weakest.
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