While U.S. auto workers would like to see their pension plans converted from defined contribution to defined benefit, it may be more challenging than it was for their Canadian colleagues.
The recent contract agreements for Unifor members at Ford of Canada and General Motors will see DC plan members move into the Colleges of Applied Arts and Technology pension plan’s DBplus program as of Jan. 1, 2025.
Lisa Contini, Unifor’s national representative for pension and benefits, says the proposal to return to a DB plan isn’t a new idea; it first came up in the union’s 2020 contract negotiations with the auto manufacturers. She calls DB plans “superior” to DC plans. “Unfortunately, the way old DB plans were set up made it hard to implement DB into a workplace. [The] CAAT’s DBplus provides the opportunity to provide a DB plan.”
While the United Auto Workers union is calling for a similar provision for its members, there’s a big hurdle — the U.S. doesn’t have anything comparable to the DBplus plan.
Norman Stein, senior policy counsel at the Pension Rights Center, says past proposals to create similar vehicles haven’t come to fruition. An early example is the Employee Retirement Income Security Act’s industry committee’s “new benefits for life security,” which was a proposed option for delivering retirement and health security that would collect contributions from employers and employees to fund the benefits. However, it never really gained any traction, he says.
More recently, the ERISA industry committee proposed creating companies to offer contributory retirement platforms that would promise a defined benefit. However, the proposal was withdrawn because it wasn’t popular.
In the U.S., there has also been some discussion about hybrid plans similar to the ones available in Canada. According to Stein, cash balance plans were once at the forefront of pension plan design. While technically a DB plan, they function like a DC plan.
However, during the 1990s, a number of companies converted their DB plans to cash balance plans, prompting charges from older plan member that the change violated age-discrimination laws and they fell into disfavour. In 2003, the U.S. Department of Treasury and the Internal Revenue Service put an end to these conversions until rules could be put into place governing the switch. Today, cash balance plans are primarily used as retirement savings options for business owners and C-suite executives.
Stein is heartened the UAW is asking for a DB plan. “It really shows there’s a real appetite among employees for defined benefit plans. [They] not only provide better benefits, but they are far more efficient,” he added, noting they also mitigate the impact of fees on retirement savings via individual DC plan accounts.
As well, he says DC plans have evolved in the U.S. — no longer retirement plans, they have become “savings plan with some emphasis on retirement.”