Marianne Garneau looks at what is at stake in fights over pensions, using two current examples: refinery workers at the Co-op Refinery Complex and teachers in Alberta. Image: workers at the refinery walk the picket line.
The bargaining logic of the capitalist side in the class war is a constant leveling down. For 25 years, private sector pension plans have been in trouble, whether because of changes in industry and other economic pressures, or outright mismanagement. Now those funds have either disappeared or are significantly “overloaded” (have obligations they cannot meet), causing a massive crisis to loom. Any remaining private sector workers with decent pension plans are clobbered with rhetoric that they are getting more than their fair share. The gambit is to get rid of pensions and then berate the remaining workers who have them.
The public sector then becomes the next frontier. As private sector pensions are eliminated, the political pressure turns on public sector workers to give theirs up as well. The unspoken understanding of the last several decades has been that public sector workers could expect to realize lower earnings than in the private sector, but in return they achieved security through employment stability and a defined benefit pension plan (where a certain level of post-retirement income is guaranteed). Now both of those are under attack, through public sector austerity. Again, the rhetoric is that public sector workers need to relinquish their cozy privilege and join the miserableness of the private sector out of solidarity. This is exactly the fight taking place in France right now: the government’s “solution” to an uneven pension regime is to level down the more generous pension benefits in certain sectors, like among railway workers.
There are two significant pension fights happening right now in Canada. Both encapsulate broader trends in the labor movement, including in the US, and therefore both are worth looking at in detail. One fight concerns public sector teachers in the province of Alberta, and the other private sector refinery workers in Regina, Saskatchewan. One concerns who controls the pension fund, and the other concerns what workers will receive.
Defined benefit plans under attack: the Co-op Refinery Complex
At the Co-op Refinery Complex in Regina, the company has locked workers out to try to force them to accept new terms regarding their pension plan, among other things on the table between the company and the union, Unifor Local 594. (Yes, the employer here is a consumer cooperative that was originally founded with a progressive mission to shield farmers from market pressures. But in negotiations with the union, it is acting like any other private-sector employer. You can read more about that here and here.) The company wants to push workers off the defined benefit pension plan and onto a “defined contribution” plan.
A defined benefit (DB) plan gives workers a certain monthly income when they retire, based on a formula that takes into account their years of service and earnings, and gradual increases in the cost of living. A defined contribution (DC) plan specifies an amount of money the employer and/or worker put into a retirement fund each paycheck. When the worker retires, they live off that pot of money.
Either way, the pension money gets invested on the market, in stocks and bonds, etc. The difference is who bears the risk (and fees). In the case of a defined benefit plan, the employer bears the risk because they have to pay workers that specific monthly income regardless of how the investments perform. In the case of a defined contribution plan, the worker bears the risk because their pot of money fluctuates with the market. They also bear other kinds of risk, having to do with interest rates and inflation. Workers take their pot of money at retirement and buy an annuity, which doles their money out to them every month. If interest rates are low, their annuity pays them less. Meanwhile, inflation means that the rising cost of living starts to outstrip the limited funds a retiree is trying to live on.
Workers are far more secure with a defined benefit plan, which also usually ends up being worth more than a defined contribution plan.
A brief history of pensions
Larry Hubich, former president of the Saskatchewan Federation of Labor, and a former trustee of a pension plan for another coop’s union (the Grain Services Union at the Saskatchewan Wheat Pool), notes that “defined benefit plans were the only kind of pension plan that existed if you go back 35 or 40 years” – in both the public and private sectors. “There was no such thing as a defined contribution plan.” This is true for both Canada and the US. DC plans “were a creature that was devised by corporations when they decided they didn’t want to carry the liability of these pension plans by themselves anymore” and wanted instead to “shift the risks onto the backs of workers.” Indeed, the number of workers covered by a defined benefit pension plan was roughly cut in half from the late 1970s through the early 2010s, and continues to drop.
Tom Fuller, a union researcher and consultant whose work focuses on pension governance, concurs that “Concerted attacks on defined benefit plans in much of North America started in the 1980s.”
There was a history of defined benefit plans going back to the late 19th century but really the golden age of defined benefit plans in the private sector happened after World War II, when the steelworkers and autoworkers staged or threatened nationwide shutdown strikes, and big steel and the automotive industry signed on for defined benefit plans. After that it spread to other industries and companies. Defined benefit plans – the bulk of them – were created in the 1940s and 1950s. In the 1980s, the political climate changed, but it’s also safe to say that because of international competition, competitive pressure on companies became more marked, so they started to look at their big liabilities.
In other words, we can observe a similar historical arc with respect to pensions as with other aspects of labor’s social position, from a favorable class compromise in the postwar period to the deliberate undermining of unions and workers in the neoliberal era.
Risk and recklessness
The issue of risk is interesting, because it’s also a question of stewardship. Theoretically, an employer that guarantees its workers a defined benefit pension should maintain a fund adequate to cover all of those obligations. Certainly, plans can become underfunded through no fault of the employer, through “market corrections.” Even an employer who manages a fund very well can fall victim to catastrophic crashes, as happened in 2008. And in the case of a defined benefit plan, their obligations remain the same, so they are left holding the bag.
However, employers have also engaged in a lot of shenanigans with regards to pension funds. For example, companies have dipped into funds to shore up the company. “There are some government regulations that prevent companies from investing in themselves with workers’ funds,” Hubich says, “but those prohibitions came later, after companies would run into financial trouble after investing in themselves on the downward side, and employees would lose all their pensions.”
Companies also take “contribution holidays” from pension funds, pausing on putting money into the fund if it has been performing beyond expectations, or because it is considered robust enough to cover all of its liabilities. But there are shenanigans here too, notes Fuller:
there are ways to manipulate this. When you evaluate the funded status – what this will cost you down the road versus what it is worth now — the “discount rate” takes all the obligations you currently have: “we have this many people, and these mortality tables (life expectancy, etc.), so this is the lump-sum figure for our liabilities.” Companies have played fast and loose with optimistic assumptions and inflated discount rates. If you pick an interest rate that is higher than justified, then you can create a “surplus” overnight.
Not all contribution holidays are because of overfunding. The Canadian Centre for Policy Alternatives has found companies lavishing shareholders with dividends or engaging in stock buybacks while underfunding their pension obligations – all the way to bankruptcy, in the case of Sears. Companies do this because pensions and other obligations to current and former employees are ranked well below debts to suppliers, lenders, and even customers by Canadian bankruptcy courts. In fact, one of the ways companies have attacked pensions – in the US as in Canada — is by filing for insolvency protections. The fact that they have that option creates a moral hazard.
In the US, the Pension Benefit Guaranty Corporation, a federal government entity, protects private sector, defined benefit plans. Private sector employers pay insurance to the PBGC, and if one of them cannot meet their pension obligations to employees, the PBGC covers the shortfall. But this too creates a kind of moral hazard. Companies and industries plead poverty to unions – “the business is in trouble; let us take a contribution holiday in exchange for your job security” – and pension plans end up underwater. After years of cleaning up the messes left by the private sector, the PBGC itself is in deep trouble.
Private sector companies have used fear, threats, and ultimatums to muscle workers out of their defined benefit plans, using legal processes and government institutions as leverage. In the face of employees holding fast to their pensions, businesses have weaponized risk knowing that at the end of the day they will face little legal penalty for doing so, and that government will bail workers out — or not.
Their stakes and ours
Federated Co-operatives Limited (FCL), the parent company of the Regina refinery, itself took contribution holidays from its pension plan in the 1990s, according to Unifor Local 594 President Kevin Bittman. This puts into context FCL’s claim that the defined benefit pension plan is underfunded. This kind of thing is possible when a plan is only overseen by the employer – some pension funds, by contrast, are jointly trusteed by both the union and the company, like the one Hubich oversaw for the workers at the Saskatchewan Wheat Pool. Hubich argues that exclusive control over the pension fund is a reason why, for a long time, employers actually weren’t interested in employee contributions. “If workers invested their own cash into the fund they expected some say in the investment strategies and fund management. Management didn’t want to give workers a voice in administration of the pension plan and they resisted it like the plague.” FCL is now whining that refinery workers need to pay their “fair share” like other Canadians have to do (again: leveling down) — but not offering joint trusteeship of the defined benefit fund.
For all its hardball with the union over the pension, FCL seems to be facing no particular financial trouble right now. Last year, it turned a record $1.1 billion in profit. Total employee compensation, including the pension plan, only represents about 4% of its $10.7 billion in revenue – and that includes management. The co-op is spending (or losing) more money fighting the union than they stand to save at the bargaining table. It’s hard to imagine what is at stake for them.
That is why some have speculated the real intention is to break the union’s back. The company has bragged about the Business Community Plan it began crafting a few years ago – basically a scheme for management to run the refinery without the union workers. That now includes setting up tent camps outside of the facility and helicoptering in scabs.
What is at stake for workers in this fight is much easier to identify. Refinery worker Darryl Watch, who has been at the refinery for 36 years, says his main concern is the company’s threat to take surviving spousal benefits out of the pension. Rather poignantly, he points out “I work at a refinery; I’m not living until I’m 80 or 90,” referring to life-shortening conditions like exposure to benzene and asbestos (another refinery worker, commenting on Facebook, wryly suggests that the company “should remember how much money they made off the deaths of the employees who never made it to their retirement”). Watch says “it’s more important that I would be able to take care of my wife when I’m not here, and that pension that we currently have would have done that.”
There’s no getting around the fact that the company is trying to switch up its long-promised guarantee to workers about having a secure retirement, midstream. Workers have invested decades of their lives and health into the plant, only to have what many say was the main attraction to working there revoked. Another refinery worker, commenting on Facebook, points out, “This 100% funded DB plan was the brainchild of the company, and our union has bypassed industry competitive wages and improvements in health benefits over many, many years in order to protect and maintain this pension plan.” The workers, through the union, collectively decided to prioritize the defined benefit plan in bargaining, and the company in turn extended it as a recruitment tool to new hires. Revoking it now is a more significant betrayal than, say, changing the wage structure, in which case workers, in this particular industry at least, can find lucrative work with a competitor like Exxon or Husky. But a defined benefit pension plan cannot simply be replaced – not even with a defined contribution plan.
Says another worker on Facebook,
With regards to changing our pension, each of us has a certain value in our DB pension “account.” The value in our “account” is pretty meagre until the final few years of our 30-year commitment.
… myself being a 20-year employee, my “account” value is still very low, even though I’m almost 70% done my career. The company would transfer this value into the proposed DC plan, and this is now my starting point to prepare for retirement in 10 years. It would be an impossible feat to save enough in 10 years to come even close to what my DB plan would be worth at retirement. Not to mention, our disposable income is reduced as well since we now would be paying into this new inferior plan, further stifling an opportunity to save for the future.
The company already bullied the union into agreeing, during a previous round of contract negotiations, that new employees would be put onto a DC plan instead of the DB plan. Instead of letting the DB plan wind down organically, FCL is now trying to get rid of it. As is always the case when a union agrees to a two-tier schema, the company uses the lower tier as leverage to tear down the higher one. Leveling down.
Teachers in Alberta: “Hands off my pension”
Now to the public sector, for another major pension fight, in this case with teachers in Alberta. They are on a defined benefit plan, which is contributed to roughly equally by teachers and the employer, the Government of Alberta. The plan has been around since 1939, and is jointly trusteed by both parties: half the members of the Alberta Teachers Retirement Fund (ATRF) are appointed by the government and half by the Alberta Teachers’ Association (ATA). The board steers investments, but it doesn’t set benefits, which are instead negotiated between the ATA and the government and laid out in a piece of legislation called the Teachers’ Pension Plans Act.
In April’s provincial election, Jason Kenney’s United Conservative Party ousted the left-leaning New Democratic Party, which had briefly punctured some 80 years of conservative rule in the province. Kenney immediately set to work pushing aggressive reforms, one of which was changing who steers the teachers’ pension fund. ATRF was relieved of its investment responsibilities and the fund will now be managed by the Alberta Investment Management Corporation, or AIMCo. AIMCo manages other public sector workers’ pensions, such as the police’s.
Greg Meeker, an elementary school principal who served on the ATRF on behalf of the Teachers’ Association for twelve years, says the bill “got rammed through the legislature in record time.” The government invoked “closure” to limit debate. “They spent a few hours on it. Normally, a bill of this length, they would spend a few months. They spent 20 minutes debating the pension portion of it.” The legislation also revoked a right other public sector pensions had to change their investment manager if they were dissatisfied with AIMCo’s performance. Meeker notes that part of the “democratic deficit” here is that “the new government never ran on any platform around pensions.”
The transfer to AIMCo was immediately met with backlash. The Alberta Teachers’ Association invited members to voice their opposition to their elected representatives by sending an email via a website they set up: “Hands off My Pension.” 30,000 emails were collected in just a few weeks. There are 35,000 teachers in Alberta. “I think Minister of Finance is a bit surprised at the blowback he’s received on this,” Meeker says, but adds: “They’re not worried about making teachers angry, in fact that’s been on their to-do list.”
The government’s stated reasons for the change were “increased efficiency,” higher returns and lower administrative costs. Granted there are some economies of scale with larger funds, but Meeker points out that the ATRF was performing extremely well (earning almost a 10% rate of return over the last six years). He doubts that the government’s claims were built on actual empirical analysis, and reiterates that this legislative move was done without teacher consultation.
Political motivations
The specific concerns teachers have are twofold. The first is that the Alberta government can issue directives to AIMCo for how money is invested. Successive governments – including even the progressive NDPs — have strenuously politically supported the oil and gas industry in the province. “Oil and gas is taking a beating right now,” Meeker notes, “low commodity prices among other things. And the concern is that things will get bad enough that AIMCo will be issued a directive to prop up an industry. And there is no requirement to make these directives public.”
Tom Fuller agrees. “The oil industry in Alberta is in serious decline. Probably long-term decline. One of the real fears people have, and it’s not unjustified, is that the government will start using those pension fund assets to bail out a sick, if not dying, industry. That would be a complete violation of the obligations of the pension administrator. But no one doubts the Government of Alberta is capable of doing that.”
One bit of evidence for this is that the Alberta government is simultaneously making noises about exiting the federally-administered Canada Pension Plan. The CPP is a pay-as-you-go plan (a pot of money that current workers pay in to and retired workers draw from) not unlike Social Security in the US, although it only covers about a quarter of pre-retirement income. The Kenney government has called his plan an “Alberta first” investment strategy, playing to “western alienation” politics, a long-exercised conservative strategy of essentially advocating for the business interests of the oil and gas industry while masking this with populist rhetoric. (It’s not unlike how Republicans in the US sacrifice worker interests to corporate lobbies and tax cuts for the wealthy while proclaiming themselves the party of real America.) Adding both the teachers’ pension fund, valued between $16 and 20 billion, and provincial CPP contributions to AIMCo, which is currently worth about $100 billion, would increase the fund significantly.
The ATRF itself invested teachers’ pensions in oil and gas at times, including in projects in the province of Alberta, Meeker says, “but never more than our asset allocation would drive. We owned a piece of Suncor, absolutely, but we were always very careful because you don’t want a double whipsaw.” He explains, “If general economic malaise happens in Alberta, it’s going to affect the plan by getting teachers laid off” and no longer paying into the pension, and also cause provincial assets to take a hit. Pension governance matters, not just from a moral perspective that those whose retirement it is should have a say in its investment, but from a strategic one: “In a defined benefit plan, you on the board make the ultimate connection between the assets and the liabilities — money you owe people. So taking one of those – the assets – to another organization, the question is, is this really a good idea?”
Fixing what’s not broken
The other concern is that transferring control to AIMCo is the first step in eroding public sector workers’ defined benefit plans. Jim Fischer, a finance professor at Mount Royal University, asks “why fix the machine when it’s not broken?” Governments constantly underfund public services and entities in order to claim a crisis and demand concessions on that basis. “All you need is some little calamity and they say ‘we’re in a problem, this is an emergency, and the only way to deal with this emergency is to convert to a DC plan and get some risk off the table,’” says Meeker. In fact, Kenney has already hinted at this strategy, saying “I led the fight to eliminate Alberta MLA [Members of the Legislative Assembly] pensions in 1993. If MLAs have no pensions, it is not unreasonable to suggest that future public-sector pension plans should avoid unfunded, taxpayer-guaranteed liabilities.” Leveling down.
The thing is, the teachers’ pension fund is not an unfunded liability. There is actually an interesting history there. In the 1950s, after the plan had been up and running for a few decades, the government declared that it would no longer fund contributions, only benefits. That is, it stopped putting money into the pension, but committed to paying pension benefits, regardless of the state of the fund. In 1992, the government reversed course and removed its guarantee on pensions, but began paying contributions again. At this point, the fund had billions of dollars in unfunded liabilities. Eventually, the government agreed to cover some of these unfunded liabilities (from before 1992), and the ATRF steered the pension fund toward full funding for the future. Meeker says, “When I started on board in 2005, the ARTF was 33% funded. This year, ATRF is 95% funded.”
Without oversight from the teachers whose futures are at stake, the government has room to engage in the same kind of shenanigans we described above, claiming or even causing crises in order to wrest political concessions.
Conclusion
Pension fights are a struggle over fundamental social priorities. Should the wealth workers create — the majority of it captured privately as profits — be used to take care of them after their working days, or are they no longer employers’ problem? Business’s position now is that it is workers’ responsibility to defer enough of their wages to survive after they retire. But on principle, businesses strive to pay workers just enough to keep them coming back to work. This was true when pensions were first created, and remains true now. Except wages have stagnated for 50 years and pensions are being aggressively revoked.
The silver lining is that workers tend to rise up and fight when pensions are on the line, as both the Co-op refinery workers and Alberta teachers are doing – not to mention workers in France. I recently had occasion to speak with two members of the CGT union confederation in France, which has been among the loudest in promoting a general strike on the pension issue. They noted that the proposed reforms to level down pensions have united all workers in opposition, not just those who stand to lose the most. Lawyers, doctors, ballerinas, metro conductors, electricity workers are rising up in solidarity with one another.