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Canada Post on strike. (Jeff McIntosh/The Canadian Press)
Canada Post on strike. (Jeff McIntosh/The Canadian Press)

Margaret Wente

The unions at Canada Post and Air Canada are fighting a rearguard action Add to ...

Which is worse, a mail strike or an airline strike? I'd say an airline strike. It's bound to make flying even more miserable than it already is. But I won't miss my junk mail at all.

The union battles at Air Canada and Canada Post are watersheds. They are not mainly about pay. They are about something far more valuable - pensions. Management and unions are fighting over a lucrative entitlement that is slowly disappearing from the private sector. Union leaders portray this as nothing less than a battle for the middle class.

If you've got a pension plan like the one these workers have, it's probably the most valuable asset you own. It's probably worth a lot more than your house. A good defined-benefit (DB) pension plan will pay out a guaranteed amount of money - often a handsome sum - for 20 or 30 years. Who wouldn't want one?

But across the private sector, these plans are slowly disappearing. That's because they cause tremendous headaches for management. Promises that looked cheap in the early days turn out to be ruinously expensive when the time comes to pay up. As the number of retirees mounts, the impact on payroll costs can become enormous. Remember General Motors? Its pension costs were so gigantic that it was really a pension fund with a car company attached.

Air Canada and Canada Post also have big legacy problems. Air Canada's pension deficit is $2.1-billion. In the next four years, it will have to kick in another $1.6-billion in contributions. "We are an airline of 26,000 employees supporting 29,000 retirees," said the CEO, Calin Rovinescu. The airline simply can't compete against a young company like WestJet, which has no unions and no pension plan either (it has profit-sharing). Canada Post, a business in precipitous decline, faces a pension deficit of $3.22 billion. Although its pension plan's investment returns have been good lately, the projected cost of future pensions has surpassed the growth in the plan's assets.

To dig themselves out of the pension hole, both Air Canada and Canada Post want to change the deal for future employees. Instead of a deluxe defined-benefit plan, where the payouts are guaranteed, new employees would get a much stingier defined-contribution plan, which basically gives you a lump sum (no guarantees of how much) when you retire. The rest is up to you. This type of plan shifts the risk from the company to you, and if you live too long, tough luck. Usually, these plans ultimately pay out far less.

No wonder the unions are fighting like hell. They say that management's aim is to create two tiers of workers, the old and the new. And they're right.

But it's a rearguard battle. In the past decade, a lot went wrong with DB plans. Interest rates fell to historic lows, and investment returns nosedived. Companies had to cough up a lot more money to meet their obligations, just as a wave of long-lived boomers began to retire. The assumptions they had used to build their pension empires turned out to be badly flawed.

The unions doing battle with Air Canada and Canada Post won't be able to hold back the clock forever. A few years from now, it's likely that almost the only workers with fully guaranteed retirement benefits will be public employees (courtesy of the taxpayer). Much of the younger middle class will not be able to count on the secure pensions that Mom and Dad got. It was a great system, while it lasted. And as usual, we boomers had the best of it.

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