Update – Bill C-27 & Members’ Defined Benefit Pension Plan

Dear members,
Bill C-27 = Dangerous Pension Legislation
This past May, we submitted a letter on behalf of our active members and retirees to Minister Morneau (the Minister of Finance) in response to Bill C-27, “An Act to Amend the Pension Benefits Standards Act, 1985,” to express our strong opposition to this legislation and to ask that it be immediately withdrawn. This bill was introduced without prior notice to unions, plan members, and retirees and without public consultation. At the time of writing, it remains at first reading in the House of Commons but could proceed at any point.
C-27 was introduced by the Liberals in the fall of 2016. The bill poses a direct threat to our members’ defined benefit pension plan (DBPP). In a DBPP, an employer makes a promise to pay a given amount in retirement, which becomes a legal obligation of the employer. If passed, C-27 will open a door for Air Canada to retroactively abandon the pension commitments it has made to our members. This means that Air Canada will be granted the legal ability to retroactively convert our DBPP into a less secure “target benefit” pension plan.
Even if you are currently retired, this bill will allow Air Canada to convert your promised and already earned DBPP benefits into “target” benefits that can be legally reduced without limit. This will transfer pension plan risks onto our members and retirees and eliminate the pension security we were previously promised by Air Canada.
Both CUPE and the Canadian Labour Congress have stressed that this is very dangerous legislation. It would allow a designated bargaining agent to consent to pension plan changes on behalf of the union. However, the meaning of this provision is unclear. It would also empower Air Canada to demand that our members agree to surrender their DBPP entitlements by forcing us into a lockout in order to pressure us to accept changes to the plan.
Air Canada could even provide individual incentives to induce members to surrender their DBPP and shift to another type of plan. Some members may agree to surrender their plan, while others may not. This has the potential to split our membership and to divide active members and retirees. Converting our DBPP serves the interests of Air Canada because it will enable the company to cut costs by directly eliminating the predictability and security we were promised in retirement.
Before the 2015 federal election, Prime Minister Trudeau said that DBPPs should not be retroactively converted. The Liberal’s 2015 election campaign said nothing about converting Canadian pension plans. The government has therefore betrayed our members and lacks a mandate for C-27.
What can you do to help? We urge you to write your MP to tell them to STOP C-27. A “deal is a deal” – a pension promise is a legal obligation that should not be broken.
Review of the Air Canada Defined Benefit Pension Plan
The good news about our members’ defined benefit pension plan (DBPP) is that it is very healthy. As of January 1, 2017, the DBPP is in a surplus position both on a solvency and going-concern basis. For all employee groups, the DB pension fund has a 31% surplus, which amounts to $4 billion dollars. In CUPE’s view, pension surplus, in general, should not belong to the employer and really represents members’ deferred wages.
We feel it is important to clarify some of the information presented by Air Canada in its 2016 pension update because the update doesn’t really tell the whole story about where the contributions that were made to the plan come from.
In 2016, Air Canada says they contributed $152 million to the all employee DBPP. But only $1 million of the company’s required contribution was actually paid for out of the company’s general revenues. The company paid the remaining $151 million contribution by diverting funds already existing in the plan’s surplus. Air Canada also used $4.4 million of the DBPP surplus funds to pay for a portion of their required contribution to the all employee defined contribution pension plan (DCPP). The company therefore saved itself over $155 million by paying for its pension promises with funds already in the DBPP. Plan members like you, on the other hand, still provided $90 million of actual contributions to these plans.
This means that rather than paying for its entire pension plan contribution with funds from the company’s general revenues, Air Canada used the surplus funds – paid in part by our members – to cover its pension promises. The company anticipates that it will do the same thing again in 2017. When a company draws on a pension plan surplus to pay for its required pension contribution, this practice is termed a “contribution holiday.”
To put this $155 “contribution holiday” in perspective, in 2015, Air Canada’s profits were $308 million. Its profits dramatically increased to $876 million in 2016. The $151 million “contribution holiday” represents nearly one-fifth of the company’s 2016 profits, which is a significant amount. At a time when Air Canada is making large profits, it does not seem right that it is able to take our DB pension plan’s surplus funds to pay for its required pension contributions. On a number of occasions, CUPE and other unions have generally been unsuccessful in challenging the ability of various employers to take a “contribution holiday” – but this does not make it right.
Air Canada will likely argue that federal tax rules that limit pension plans from accruing more than a 25% surplus have forced the company to take a “contribution holiday.” But, there are several other ways in which pension plan surpluses can be used to benefit members, rather than being diverted in a manner that exclusively benefits the financial interests of the company. Because our pension plan is so vital to both our active members and retirees, we want to take a first step towards responding to the situation by informing you about it and answering any questions you may have.
To view a copy of the letter sent to the Minister of Finance, please click “here“
In solidarity,
Marie-Hélène Major
President, Air Canada Component of CUPE