General Motors of Canada Co. and Unifor have averted a strike, reaching a tentative agreement that includes moving new employees into a defined contribution pension plan instead of the current hybrid arrangement they’ve been in.
The move to defined contribution plans isn’t uncommon, of course. This summer, it was one of the central issues in the negotiations between Canada Post and the Canadian Union of Postal Workers, resulting in a deal that included maintaining the defined benefit plan for all current and future permanent employees for at least two more years.
Mark Firman, a Toronto-based pensions lawyer who didn’t act in either of the negotiations, says the two-tiered pension environment is certainly a trend but he notes it won’t have an immediate impact on GM’s funding obligations. “The deficit that exists today is based on benefits that have accrued up until today. It’s a stop-gap or perhaps a de-risking measure for future funding liabilities. But it may be some years before the company actually realizes cost savings.”
Read: Removing pension issues a solution to Canada Post stalemate: prof
The silver lining for GM is cost predictability, says Firman, who adds that will also depend on how it designs the defined contribution component. “Defined contribution plans where members have investment choice — and most of them do — are actually legally riskier from a company perspective than a defined benefit plan, so the costs in the long run may or may not be greater.”
While it’s too late now for GM’s new employees, Firman would like to see the Ontario government focus on clear legislative guidance for a third way, such as target benefit plans, between defined benefit and defined contribution pensions. “It’s possible to land somewhere in between,” he says, noting British Columbia and Alberta currently have legislation that allows for that type of plan.
“It has had target benefit rules passed since 2010, but they’re not in force,” he says, referring to Ontario. “And even if they were to come into force as they’re written, they would only apply to a very narrow scope of plans and would not necessarily apply to a single-employer environment, like a big automotive company.”
Read: Which is better: DB, DC or a third way?
The deal reached this week is the first of the 2016 round of negotiations with the Detroit automakers and will set the pattern for the rest of the talks with Ford Motor Co. and Fiat Chrysler. “Given that the union is the same, its concession in this area would certainly influence the negotiations with the remaining two companies,” says Firman.
The four-year agreement, which covers about 4,000 autoworkers in Ontario, also includes wage increases, signing bonuses and lump-sum payments. It also addressed Unifor’s central demand of production guarantees for GM’s plants in Canada.
Read: Detroit Three contract bargaining will include pension structure