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TORONTO — Telephone giant Bell Canada is eliminating supplemental benefits for future retirees, joining a growing list of companies putting a lid on soaring retirement obligations.
Bell Canada said the move was taken because the company's benefits costs are far greater than those faced by rival Telus Corp., which does not pay for post-retirement benefits for retirees.
Bell's benefits include coverage for prescription drugs, dental care and eye glasses, as well as life insurance coverage.
"We determined that our benefits at retirement program is far more expensive than those offered by our competition," said Bell Canada spokesman Paolo Pasquini.
Beginning Jan. 1, 2012, most benefits will be eliminated for new retirees over 55, but pensioners will still be eligible to receive medical benefits until they reach 65. All post-retirement benefits will be eliminated for employees who retire after 2017, although Bell will offer a program to allow retirees to pay for their own benefits from a Bell supplier.
The changes will not affect employees who are currently retired, nor those who retire before 2012.
Bell's move comes as numerous North American companies are scaling back retiree benefits. Experts say the trend has been driven by soaring benefits costs and accounting changes that have forced companies to carry more of the liability on their balance sheets.
BCE Inc., parent of Bell Canada, says its future obligation for post-retirement benefits — not including pension payments — was $2.2-billion at the end of 2006, an accounting measure that has almost doubled over the past five years. The company's projection of future annual payments shows costs rising to $731-million by 2012 from $102-million in 2007.
Bell is not alone in eliminating post-retirement benefits.
In early February, Sears Canada Inc. said it will eliminate all post-retirement benefits for all employees who have not achieved the eligibility criteria by Dec. 31, 2008, arguing it is uncommon to offer such benefits in the retail sector.
Last June, Nortel Networks Corp. said it will eliminate all future post-retirement health care benefits for employees by Jan. 1, 2008.
Despite a few high-profile cases, however, experts say elimination of benefits has been an extreme step in Canada, with more companies opting to scale back their plans or cap annual payments.
A 2006 survey of 218 Canadian companies, conducted by benefits consultant Hewitt Associates, found only 4 per cent of companies with post-retirement benefits planned to eliminate them entirely, but more than half said they would reduce their level over the next three years. Almost half the companies surveyed provide no post-retirement benefits at all.
Tim Clarke, who heads the benefits consulting practice at Hewitt in Toronto, said there is a trend toward "generous grandfathering" of benefits. He said that for legal and moral reasons, many companies feel they should not cut benefits for existing retirees and should give future retirees advance notice of changes.
"A rule of thumb is that a minimum of two years notice is required," he said in a recent interview. "We usually see from Canadian employers that they go beyond legal obligations."
Mr. Pasquini said the changes at Bell were announced far in advance to give employees time to adjust.
But Bell union representatives are not satisfied with that concession. John Edwards, administrative vice-president of the Communications, Energy and Paperworkers Union, said the benefits change at Bell will be raised as a bargaining issue during contract talks this year.
He said post-retirement benefits are not part of the union contract, but said Bell routinely argues during bargaining that the value of the benefits should be considered when calculating the value of the total compensation package.
As a result, Mr. Edwards said the union feels workers have paid for the post-retirement benefit package in reduced compensation.
"And to have that withdrawn without offsetting it with compensation, well, we've paid the price for this at negotiating tables over the past 30 years," Mr. Edwards said.
"We have some ownership."
In an internal letter to employees, BCE chief executive officer Michael Sabia said most other telecom companies offer few or no post-retirement benefits.
"Everyone knows we're in a competitive fight," he wrote. "Markets are tough. And for the first time in our history, we face competitors in every line of our business."
Greg Durant, who heads the benefits practice at consultants Watson Wyatt in Toronto, said there are now moves to curb costs across a broad spectrum of industries, including those without financial problems, such as banks, and those without large numbers of retirees, such as high-tech companies.
He believes many companies don't see post-retirement benefits as a crucial feature to attract or retain employees.
"Those industries — high-tech or finance — they're not seeing employees stay for the duration of their lifetime, so it's not an issue for their employees that they have these benefits," Mr. Durant said.
