A House of Commons committee is recommending the government look for ways to deal with the solvency of Canada Post’s defined benefit pension plan, including a suggestion to examine the feasibility of adopting a shared-risk model.
“Certainly for a large plan like Canada Post, a target-benefit or shared-risk model would provide a good alternative to defined benefit,” says Jana Steele, a partner at Osler Hoskin & Harcourt LLP. “It would potentially assist with long-term sustainability of the plan and address potential affordability issues.”
Canada Post’s defined benefit pension plan was at the centre of its contract negotiations with the Canadian Union of Postal Workers this past summer. A tentative agreement, which will last two years, includes maintaining the defined benefit pension plan for all current and future permanent employees, rather than putting new employees into a defined contribution plan.
Read: Labour deal lets Canada Post workers keep DB plan for at least two more years
In its report, published Tuesday, the committee suggests the federal government and Canada Post take steps to modernize the pension plan so it can operate on a going-concern basis and is no longer subject to solvency funding requirements.
It also recommended examining three options for feasibility:
- Adopting a shared-risk model between the employer and plan members;
- Pursuing joint management between the employer and plan members; and
- Incorporating the Canada Post plan into the public service pension plan.
While Steele touts a shared-risk or target-benefit model as a potential solution, she says there would still have to be legislation to facilitate that. “We currently, at the federal level, have the proposed amendments to the Pension Benefits Standard Act . . . to allow target-benefit plans for federally regulated plans, but those are not yet enforced; in fact, as far as I know, they’ve only received first reading,” she says.
“So there would have to be legislation to allow that type of design, either specific legislation for Canada Post or the passing of and bringing into force of the new target-benefit regime for federally regulated plans.”
Read: Federal target-benefit conversions face an uphill battle
In a letter to Finance Minister Bill Morneau in November, Mike Palecek, national president of CUPW, wrote that Bill C-27, which would allow federally regulated employers to establish target-benefit pension plans and convert existing defined benefit pensions to the new approach, represents a “dangerous and immediate attack on future and current retirees . . . in the federal private sector and at Crown corporations such as Canada Post.”
He also acknowledged the committee’s review, which was underway, and noted that CUPW made a presentation to the committee, telling them the financial situation of the defined benefit pension plan is improving and arguing that solvency relief is appropriate and necessary. “It is the position of CUPW that, in the case of Canada Post, the solvency funding rules under the Pension Benefits Standards Act are unnecessary and counter-productive,” Palecek wrote.
“ . . . Requiring Canada Post to fund the plan to the solvency measure (and during a period of historically low interest rates) would be counterproductive. It would divert resources away from other priorities for Canada Post unnecessarily. Forcing large and unsustainable payments from Canada Post to the plan to protect against a remote risk would actually serve to undermine the continuance of the defined benefit plan itself – the very thing the solvency funding rules were introduced to protect.”
Read: Federal target benefit bill denounced as ‘unconscionable betrayal’
The committee’s second suggestion, to pursue joint management between the employer and plan members, relates to the first, says Steele. “In my personal view, if you’re going to a shared-risk sort of regime, where the members are taking on more risk, I do see the joint-governance model as making a lot of sense, with a large plan like this, with members taking on more risk.
“What that looks like, I guess that’s to be determined . . . whether that’s a 50/50 or some other split. But having plan members as part of the management would make a lot of sense.”
Canada Post released a statement about the committee’s report but didn’t respond to requests for comment on the pension plan.