© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the May 2006 edition of BENEFITS CANADA magazine.
Educate then negotiate
The key to a solid relationship with union members is to keep them informed and educated about their pension and benefits plans.
By Joel Kranc

Strikes. Picket lines. Lockouts. It’s hard not to associate these images with employers who have unionized workforces. But there is much more to an employer-union relationship than a purely adversarial one.

Plan sponsors who operate in a unionized shop must consider how best to deal with the needs of the workforce in ways that are different than their non-union counterparts. And that becomes especially critical in these days of underfunded pension plans, a movement from defined benefit(DB)to defined contribution plans and the high cost of healthcare.

As with many aspects of workplace politics, education and the communication of ideas, reasoning, and explanations for the logic behind planning are the keys to successful union relationships.

Unions have never been afraid to fight for their members and push for benefits, even in times where costs are escalating. And they often get what they want. According to data from the Canadian Labour Congress in Ottawa, 79% of unionized workers have a pension plan compared to only 32% of non-unionized workers. Similarly, 78% of unionized workers have some kind of medical plan while only 40% of non-unionized workers have a health plan.

Ironically, while unionized shops enjoy pensions and benefits, employers face underfunded plans and are considering benefits “claw backs.” In March 2006, one of the largest funds in the country, the Ontario Teachers’ Pension Plan in Toronto, saw its funding status drop from 84% funded a year ago to just 77% this year—despite an impressive 17.2% growth in assets. In the U.S., there have been high-profile “freezings” of DB plans at Verizon, General Motors and United Airlines.

Due to the high number of requests from sponsors regarding benefit reductions, the Office of the Superintendent of Financial Institutions last month sent out a guideline explaining to plan sponsors the principles of requesting the authorization to undertake such a process.

What do the unions say to all this? First of all, to suggest to unions that they have created or even been a part of this situation is not advisable. Says Ken Georgetti, president of the Canadian Labour Congress in Ottawa, “We would put on the table improvements to a pension plan. But if it’s agreed to by the employer at the end of that process, to turn around later and say ‘Well, it was the union’s fault,’ I would go back and say to the management and the directors: ‘If you couldn’t afford the program, why did you agree to it?’” He adds that the proposals themselves don’t bankrupt the company or its pension plan; in his opinion, unions wouldn’t undertake a position if they knew it was unsustainable.

Where the problem lies, according to Georgetti, is with the contribution holidays that were taken by plan sponsors when the markets were faring better.

Not all desires can be met by employers, particularly when pensions and benefits are costly and sponsors are concerned with the funding status of their pension plans. Instead, they must look at their individual situations and see what works best for them.

Gaining control of the process is one approach. Scott Simpson, a managing partner with Toronto-based consulting firm Morneau Sobeco, says employers who have unionized workforces don’t have total control over their benefits plans by the sheer fact that they are negotiable. In the current environment, Simpson says, employers are treading lightly into negotiations. “Plan sponsors are tending to be more cautious, recognizing that in the past, benefit improvements even in good times can, down the road, have significant implications on the financial status of the plan.”

Another method is to determine a clear course of action, based on the employer’s and union’s needs. Simpson says an employer can get a feeling right away as to what direction it wants to take in its negotiations. “If a union comes back wanting the moon, the employer has to assess what their willingness is, as far as pension and benefits, to give up to the union.”

Georgetti favours a big-picture approach. He says that strengthening the pension and benefits systems in Canada and introducing further legislation would help the system, plan sponsors, and ultimately would lower costs. For example, the Canadian Labor Congress supports a national pharmacare program. “It would keep a tighter control on the escalation of the costs of benefits,” says Georgetti.

As for the union/employer relationship, he says there is about a 98% success ratio at the table to reach mutual agreements without any disruption or interruption. “It works a lot better than in the non-union side because at the end of that process, when 98% of those agreements are inked, there is co-operation and consensus on the agreement between employers and their workers.”

It’s clear that unions have many advantages over their nonunion workforce counterparts. They have a collective bargaining process that allows them to enhance their benefits structure. But how should plan sponsors prepare for negotiations? And how does the creation or change of benefits differ in a unionized versus a non-unionized environment?

Take Mississauga, Ont.-based Purolator Courier, for example. The shipping giant has 12,500 employees in Canada and 10,000 of them are unionized. Of those unionized workers, 9,000 are represented by Teamsters Canada.

Chris Faulkner, director of labour relations, says Purolator’s workforce mirrors the general population in terms of an aging workforce and looming shortage of younger workers. “That is part of our challenge,” he says.

To overcome the challenge, Purolator educates its unions during collective bargaining, providing as much information as it can. “It’s one thing that keeps [the unions] up to date,” says Faulkner, adding this helps the unions understand the information they are being presented and assists them with their bargaining position when considering the costs associated with benefits. “They understand from the company perspective, that when we tell them a dollar increase [in benefits] could mean hundreds of thousands or millions in costs, they recognize what the costs will be.”

Faulkner says the process not only educates union leadership, but also helps it educate its membership so that members are better informed and understand what’s at stake at the bargaining table.

Simpson agrees. “Unions typically are a little suspicious about the employer and the information that’s being passed,” he says. “Therefore, the more information is being passed, the better position the employer is in as far as negotiations are concerned.”

There are challenges but there are also opportunities when it comes to making the right choices within a unionized environment. The challenges, according to Faulkner, include the fact that plan sponsors are committed to decisions based on what they’ve bargained. Therefore, he says, there is a need for a lot of preparation and research on what competitors are doing, particularly the ones that are unionized.

But there is also internal research. “We also spend a lot of time talking with our unions and understanding what their basic issues are,” adds Faulkner. It makes it a lot easier to prepare for meetings, he says, if you know what the big issues are ahead of time.

On the pension side, Faulkner says preparation includes talking with the company’s actuaries to know what the costs will be should there be increases in the pension benefit.

And the methods do not necessarily change when a plan sponsor has to disseminate unpleasant news about the state of the pension or benefits plan. “If you have a difficult issue to deal with, be it pension or anything else, you have to have an open discussion and say ‘here’s what we’re faced with and here’s what we think is a solution…’ and engage our union within our organization,” says Faulkner. And the best and only approach is to have that dialogue when the issues present themselves. “If you wait until bargaining, you really increase the challenges you face at bargaining.”

He also advocates advance preparation. “You need to be able to make decisions quickly so you have to make sure you have all the information you need well in advance.” That, says Faulkner, is a key difference between setting up pension and benefits plans in unionized and non-unionized shops. In fact, he thinks it’s an advantage. “It does give you the opportunity, as you go into bargaining, and forces you to have that deep understanding that you can articulate to your unions,” he says. “It could be argued as an advantage [over non-unionized employers].”

When it comes to rules and regulations, and the environment in which they must work, both labour and management are not too far off in sentiment. Georgetti says there needs to be a rethinking of the structure of the regulatory system and the nature in which both pensions and benefits are calculated. And before one can change anything, unionized workers or not, everyone must agree to abide by the rules that govern them. Says Faulkner, “At the end of the day, everyone has to live under the same regulatory environment in terms of the kind of work you need to do on an ongoing basis.”

Joel Kranc is news editor of BENEFITS CANADA. Joel.kranc@bencan-cir.rogers.com.