General Motors of Canada Ltd. still faces a massive shortfall in its unionized pension plan despite a $3.2-billion contribution taxpayers made to the fund when the auto maker's parent company went into bankruptcy protection in 2009.
The shortfall stood at $2.2-billion as of Sept. 1, 2010 (the latest data available), which is a vast improvement on the $5.1-billion deficiency in the plan before the special payment was made. But it is still a significant amount for a plan that covers more than 30,000 retirees.
Addressing that legacy is a daunting challenge facing GM Canada and other storied names in corporate Canada. Investment returns on pension funds have been weak, interest rates have fallen to extremely low levels, and retirees are living longer than people from earlier generations.
That combination is raising questions about the sustainability of pension plans at scores of Canadian companies, particularly in the manufacturing sector, where many older companies are, like GM, supporting thousands of retired workers with a smaller number of current employees. When a company goes out of business with an underfunded pension plan, it can put pressure on the public to pay the tab – either directly or through government-backed insurance plans such as Ontario's Pension Benefits Guarantee Fund.
The GM Canada plan stands out in part because it was the looming crisis of the $5.1-billion shortfall that company executives pointed to in 2008 when they sought a bailout from the federal and Ontario governments.
The Canadian taxpayers' share of the bailout eventually amounted to $10.6-billion as part of the $60-billion rescue of the auto maker's parent company, General Motors Corp.
Although the data are from September, 2010, and GM Canada is in the midst of a five-year program that requires contributions of $200-million annually, it is believed the shortfall was not reduced significantly in 2011, if at all, because returns for pension funds in Canada were generally poor.
"Most defined-benefit pension plans in Canada are underfunded currently because the investment markets have done so poorly over the recent past," actuary Paul Duxbury said in a November examination of the GM Canada plan that was commissioned by a group of Canadian Auto Workers retirees.
"However, this plan is in far worse shape than most."
The $2.2-billion shortfall in 2010 was as measured on a solvency basis, which calculates the assets and liabilities in a plan and their value if it were to be wound up on the date of the calculation.
If the GM plan had been wound up on that date, benefits for retirees, surviving spouses and currently active workers would have been reduced by more than a third, Mr. Duxbury noted.
GM Canada president Kevin Williams said he does not foresee any problems meeting the commitments the company has made.
Demographic trends are working against GM Canada, as they are for other companies with large numbers of retirees and dwindling numbers of active workers, such as Air Canada, Canadian Pacific Railway Ltd. and the former Stelco Inc., now part of United States Steel Corp., which locked out Hamilton, Ont., workers for nine months in a dispute that focused on pensions.
Employers with defined-benefit plans "have to be putting pressure on [Ontario]to try and deal with this situation because with the collapse in the long-term bond rates, all of these plans are massively under water," said one pension expert, who requested anonymity.
About 30,000 unionized retirees drew pensions from GM Canada in 2010 – while the number of active workers stood at 6,168. That compared with 23,735 retirees and 15,223 working employees in 2006.
The situation at GM Canada is significantly worse than at Chrysler Canada Inc. and Ford Motor Co. of Canada Ltd. There were 2.6 retirees for every active worker at Ford in 2011, while Chrysler's ratio was less than two to one.
The GM ratio is likely to deteriorate even further if it goes ahead with the scheduled closing of one of its two car-assembly plants in Oshawa, Ont., in 2013.
That closing will eliminate as many as 2,000 more GM Canada unionized jobs, said Chris Buckley, head of the CAW's GM bargaining committee and local 222 in Oshawa.
Mr. Buckley said he is not sure how prominent the pension issue will be in negotiations that begin this summer on a new labour agreement.
"I believe the company's going to be extremely aggressive when we get to bargaining this summer," he said.