Defined Benefit Pension Plans Are Unaffordable for Any Employer

The Canadian Union of Postal Workers labour dispute with Canada Post — its 21st time in the past 50 years since the union was formed — reminds of the adage “You should be careful what you ask for.” Times have changed.

There was a time when a postal strike would have knocked Canada to its knees. Now, in an era of emails, fax machines, and couriers, fewer people use Canada Post. Canadians, by and large, will give a collective yawn to a postal strike. The union’s position in this dispute belies its lack of bargaining power.


Pay Equity Is the Ace Up Canada Post Union’s Sleeve: Sunira Chaudhri Explains on BNN

Postal workers are compensated based on that historical bargaining power. They are dramatically overpaid relative to their qualifications and skill, on average letter carriers in urban areas make $50,000 a year, rural carriers, about $39,000. But by my estimation the job, which pays several times the minimum wage, can be performed by anyone regardless of education, experience, or training. In a genuinely free market, these workers would make much less.

But salaries are the least of it. Like most public sector employees, they also enjoy defined-benefit pension plans, which no longer exist in the private sector. The relatively few private sector employees fortunate enough to enjoy any pensions have defined-contribution plans. With a defined-benefit plan, a set pension amount is guaranteed for life, regardless of how the plan performs, whereas defined-contribution plans pay out according to the value of the monies in the plan.

Keeping it’s defined benefit pensions, CUPW said at the start of the labour dispute, was its key issue. When it began receiving blow-back from taxpayers, it quickly revised its talking point to “pay equity.” Now, what they are arguing is that because rural postal carriers are predominantly female, and urban letter carriers male, Canada Post is purportedly breaching pay equity legislation.

Yet, the existing wage disparity for letter carriers in urban vs. rural areas was negotiated by the union based on living costs in each. This is a red herring meant to develop public sympathy for a union that deserves none.

To be clear, the major issue here is Canada Post’s demand that new employees receive defined-contribution plans while existing workers retain their unaffordable defined-benefit pensions. To put this in perspective, the shortfall for Canada Post’s defined-benefit pension plan as of the first quarter of 2016 is $6.1 billion, up from about $3.4 billion two years ago. With interest rates likely to remain low, the shortfall will continue to grow exponentially. That deficit is picked up by Canadian taxpayers, in addition to $3 of pension contributions for every dollar paid by postal workers.

As Bill Tufts, author of Pension Ponzi, notes, the city of St. John’s, NL, last year, facing potential insolvency, converted new employees into a defined contribution plan, the same route Canada Post suggests. I have long noted it makes little sense for Canadian taxpayers to be paying its employees i.e. public servants, including employees of Crown Corporations, more in wages or benefits than they themselves earn for jobs with the same qualification, workload and skill levels.

It’s time Canada Post use its substantial bargaining power to at least freeze wages and convert the defined-benefit plan to a defined-contribution plan for all employees. It has an historic opportunity to begin equalizing its employees wages and benefits to comparative private sector jobs such as couriers and those handing out flyers door to door.

Canada Post’s capitulation has been foretold by its request for arbitration which, in an act of folly, the union rejected. It is of note that arbitrators, who would determine the dispute, without a strike or lock-out, have historically favoured unions.

(The over-inflated wages and benefits in the public sectors have almost uniformly been imposed by arbitrators, not through a strike or lock-out.)

Canada Post has the largest number of employees among federal Crown corporations. Its pension shortfall is proportionally the largest. It is well situated to use this opportunity with a union without bargaining power to redress the historic overcompensation of its members. If it succeeds and members quit as a result (which they won’t), they are easily replaceable. If postal workers opt to strike, it would be seamlessly simple to replace them for the duration of a strike, with employees delighted to have a job at lower wages than the incumbents.

Canadians should not permit Canada Post management to relinquish this opportunity. Our public financing depends upon rolling back federal service defined-benefit plans. Given CUPW’s weak bargaining power we may not obtain another such opportunity. Canada Post should not be permitted to foil it by punting the dispute to an arbitrator.

New Call-to-action

In The News This Week

Subscribe to our Monthly Newsletter