The deficits posted by General Motors of Canada Ltd. pension plans dwindled slightly last year, but the auto maker still faces a shortfall of $3.6-billion that must be eliminated by 2020 under Ontario government pension rules.
The solvency deficiency in GM Canada's hourly and salaried pension plans dropped by 4 per cent to $3.558-billion from $3.705-billion, according to the most recent valuation of the pensions as of Sept. 1, 2014.
The unionized plan has assets that would cover about 72 per cent of benefits if it were wound up as of the valuation date. That's also an improvement from 2013 levels, when the wind-up liability stood at 66 per cent.
It's also much healthier than the 45-per-cent deficiency in 2009, when federal and Ontario taxpayers contributed $10.8-billion to the bailout of General Motors Co. – $4.5-billion of which went to help reduce the pension deficit.
The plans were boosted in 2014 by a 16 per cent return on assets. But they were hurt by a reduction in the discount rate, which is the interest rate companies use to measure the long-term return on assets set aside to cover the obligations in the funds. The discount rate for the GM Canada defined benefit plans fell to 4.25 per cent from 5 per cent a year earlier, meaning a higher value of assets is required to backstop the liabilities. The state of the pension plan for unionized employees represented by Unifor is already a key issue in discussions between the company and the union, a year before they begin officially bargaining on a new contract.
The company is intent on eliminating the defined benefit portion of the pensions offered to newly hired employees, sources have said. The plan for newly hired unionized employees is a hybrid plan that combines defined benefits with defined contributions by the company.
Union sources have said that local leaders in Oshawa, Ont., and St. Catharines, Ont., are prepared to make that concession to GM Canada in return for commitments of new product – especially in Oshawa. There are no new vehicle programs allocated to Oshawa to replace vehicles that are being shifted elsewhere or going out of production.
More than 29,000 unionized retirees and beneficiaries receive a pension from the plan, but that number will grow when 1,000 jobs are eliminated later this year – when one of those production shifts occurs as the Chevrolet Camaro gets transferred to Lansing, Mich.
Union officials are hoping that the combination of the low Canadian dollar and the ability to hire new employees with less costly pensions and lower wages than existing employees for 10 years will convince GM to allocate new products to Oshawa and an engine and transmission plant in St. Catharines.
GM Canada faces a payment of $638.2-million in the current pension year but it can apply $287-million that remains in its prior year credit balance, effectively a bank account from which it can draw to reduce annual cash payments. But if it uses the rest of the credit balance this year, the remaining payments to eliminate the solvency deficiency by 2020 will be cash outlays.
Ford Motor Co. of Canada Ltd. faces payments of about $640-million to eliminate the solvency deficiency in its unionized pension fund by 2019.
If Ford's plans had been wound up as of Dec. 31, 2013, the assets would have covered 75 per cent of the liabilities.
"Like many companies, Ford of Canada chose to participate in the Ontario government's solvency funding relief provisions, which were put in place by the government in recognition of the significant impact the economic crisis had on Ontario pension plans," spokeswoman Michelle Lee-Gracey said.
Ford Canada is on track with a plan to reduce the solvency deficiency and will finance any new deficits that arise as required by Ontario pension regulations, Ms. Lee-Gracey said.