Today Sunday December 8, 2013.
NO TO CANADA POST’S ATTEMPTS AT TURNING THE SOLVENCY DEFICIT OF THE DEFINED BENEFIT PENSION PLAN INTO A “CRISIS”!
CANADA POST MUST FULFILL ALL OF ITS OBLIGATIONS TO OUR DEFINED BENEFIT PENSION PLAN!
AS THE MAIN SHAREHOLDER, THE CANADIAN GOVERNMENT MUST GUARANTEE THE SOLVENCY OF THE DEFINED BENEFIT PENSION PLAN!
WE MUST DEMAND ACCOUNTABILITY!
Ever since the release of the Annual Financial Report for the year 2011 where Canada Post announced its first operating deficit in 16 years, the solvency deficit of our Defined Benefit Pension Plan* has been used by the corporation to create hysteria and to try and convince the people that the corporation can no longer afford to provide proper pensions to postal workers who have earned the right to retire in security.
During the strike/lockout of the same year, the corporation also attacked the Defined Benefit Pension Plan and tried to introduce a Defined Contribution Pension Plan* instead which would have greatly affected our right to retire in security. At the time, they had very maliciously tried to undermine the precious unity of postal workers which is necessary for the fight to achieve Defined Benefit Pension Plans for all by saying the changes they were proposing to the pension plan would only apply to new hires.
Just recently, on November 21, 2013 to be precise, Canada Post segment of the Canada Post Group of Companies reported another loss before tax of $129 million for the third quarter compared to a loss before tax of $161 million in the third quarter of 2012. The segment recorded a loss before tax of $165 million for the first three quarters, compared to a loss before tax of $322 million in the first three quarters of 2012. Canada Post claimed that the sale of the Vancouver plant reduced the loss over the three quarters by $109 million. The overall loss was once again attributed to declining Transaction Mail volumes which they said outweighed the growth in both revenues and volumes in Parcels.
With the release of the third quarter financial report, Canada Post persisted along the same lines as in 2011 by suggesting that the solvency deficit was of such great proportions that it will need a significant cash infusion by the middle of next year to meet the pension payment obligations which they estimated at $1 billion. Without this cash infusion, they said, the corporation will no longer be able to carry out its mail operations. Canada Post also announced it was “exploring with its shareholder options to address the liquidity challenge”.
As a Crown corporation, the Canadian government is its main shareholder. Canada Post will soon max out on the $2.5 billion letter of credit it has been using to fund the solvency deficit. The Conservative government has already informed Canada Post that it will not extend a further letter of credit. Canada Post has actively been trying to create a “crisis” over the issue and then use the “crisis” to try and extort further contract concessions from postal workers while imposing drastic cuts in postal services to the Canadian people.
The union has also given credibility to this corporate hysteria by sending a letter to all its members which coincided with the release of the third quarter financial report by the corporation repeating the corporate capital-centred accounting and stating that “given the magnitude of the deficit and required payments, this could eventually render the corporation insolvent”. The union noted in its letter that Canada Post was in the process of cutting, closing and downsizing its operations and that it might very well “use a pension crisis to make even more dramatic cuts to our jobs and public postal service”.
“Moreover, the letter said, we know the Conservative government is no friend of public postal service or postal workers. We know a review of the Canadian Postal Service Charter will take place in 2014. The dire pension situation could result in the Conservative government allowing any and all cuts proposed by the corporation. Furthermore, the government could act unilaterally on the pension difficulties”.
In conclusion, the letter informed that the National Executive Board had decided to have discussions with Canada Post. “Our ultimate objective is to protect our defined benefit pension plan”, the letter said. The letter further informed that the union was exploring options to protect the “viability of our pension plan by working with actuaries and lawyers who specialize in pension plans to look at what’s possible. The union and Canada Post have agreed to a working committee to address the realities of the pension plan”.
In the absence of announcing a national program of action based on a sound independent political and economic analysis capable of mobilizing the workers in a fight against this state of affairs, the letter sent by the union only contributed to generating more fear and insecurity amongst the workers leaving the workers wondering if the national leadership of the union was not working in cahoots with the corporation setting the stage for concession-making outside the process of negotiations under the hoax of dealing with the “pension crisis”.
In September 2013, just two months before the release of the third quarter financial report by the corporation and the coinciding letter to the membership by the national leadership, the union had already initiated a meeting with the corporation and made a proposal to put in place a joint working committee to address what it referred to as the “realities of the pension plan”. The union also sent a letter to Liza Raitt, Minister of Transport responsible for Canada Post, asking her to organize tripartite meetings between CPC, CUPW and the Harper government to discuss the post office pension plan.
On November 28, 2013 the union was notified by Canada Post management that they will once again be implementing a unilateral increase in pension contributions for employees. According to the notice, the employee contribution rate will increase another 0.6% of pensionable earnings. This is in addition to the 0.7% increase that was unilaterally implemented in July 2013. Starting with the first pay of 2014 members of the plan will contribute 8.1 % of pensionable earnings (from 7.5%) up to the Year’s Maximum Pensionable Earnings ($52,500.00) plus 11.6% of pensionable earnings (from 11.0%) over $52, 500.00 of pensionable earnings. This unilateral increase in pension contributions for employees represents a violation of the work contract and the union has filed a grievance.
*Define Benefit Pension Plan: A plan where participants’ contributions to the plan are based on a specified level of future retirement benefits. The plan makes a promise to pay a defined amount in benefits so that the participant can plan their future based on a predictable retirement income.
*Defined Contribution Pension Plan: A plan where contribution amounts are known but there is no guarantee of specified benefit amounts.
LET US ALL ADDRESS THE SO-CALLED “REALITIES OF THE PENSION PLAN”! LET US ALL LOOK INTO IT FOR OURSELVES!
First, the Sunday e-mail considers all questions relating to the pension plan of postal workers to be of utmost importance since the pension plan represents the just claim by postal workers on a part of the added-value they create in the course of carrying out productive work in mail processing plants and by providing much needed postal services to the people of Canada.
This claim on a part of the added-value postal workers create through work is placed in a fund to provide postal workers with proper pensions which guarantees their right to retire in security. The pension plan is a sacred trust that was earned through many years of hard work and which fully belongs to the workers. HANDS OFF OUR PENSION! is thus an appropriate slogan which defends the right of workers to retire in security and defies all those who want to impose retrogression on this question.
The Canada Post Defined Benefit Pension Plan has 57,923 members who are active employees. This is down 8.4% since 2008. Currently there are 26,236 retirees, an increase of 77.8% since 2008. The corporate policy of abolishing all positions left vacant as a result of retirement is a major factor which is seriously threatening the pension plan. The Postal Transformation Project has eliminated thousands upon thousands of positions across the country as its main aim was to increase the level of productivity while using fewer workers.
In its submission to the Strategic Review held in 2008, Canada Post said regarding the Postal Transformation Project: “If we invest now, we can avoid service disruption even as we expect a total of 27,000 retirements and other attrition from Canada Post over the next decade. Processes can be modified and modernized to enable us to avoid replacing many of these departing employees. If we do not invest in change, we will have to hire a new person behind each and every retiree at a cost to the company of wages and benefits for the following 30 years”.
The implementation of this direction means that the number of active contributors to the pension plan is significantly decreasing while the number of retirees is significantly increasing alongside. This is as a direct result of the corporate policy based on a capital-centred outlook which looks at the workers as a “cost of production” that it tries to reduce rather than looking at the workers from a human-centred outlook as the actual producers of all the wealth and which requires to be looked after throughout their lifecycle.
According to the contract, all vacant positions must be filled as they occur. The union is duty bound to enforce the work contract on this front and to wage an organised struggle against the corporate policy which is not only devastating the workplaces but which is also affecting the ability of the pension plan to be self-sustaining.
The pension plan now is fully funded on a going-concern basis. What does that mean? It means that there are enough assets being held in the plan for fully-indexed pension benefits to be paid in the future for accumulated service to date. It also means that the level of contributions made by plan members and Canada Post is enough to cover the additional pension obligation to be created in the future. The going-concern valuation assumes that the plan continues in operation and is longer term in focus. The funding on a going-concern basis is more than adequate. As a matter of fact, the plan’s net investment assets as of 2012 were $16,712 million which is an increase of $1,365 million from the previous year. The pension plan has even showed surpluses at certain times. The plan has assets with a market value of $17 billion.
It is only on the solvency basis that the pension plan is in deficit. What does that mean? It means that using the market value of assets, the pension plan has a deficit of $5.9 billion, for a solvency ratio of 72% effective December 31, 2012. This deficit represents the shortfall that would exist between plan assets and the cost of future benefits if the plan had been terminated on December 31, 2012. In the case of Canada Post, the plan can only be terminated in a situation where Canada Post would be wound up. The wound up of Canada Post would require an act of Parliament dissolving it and terminating its operations.
Canada Post’s pension plan is currently regulated under the federal Pension Benefits Standards Act of 1985. At the time of its enactment, it was said that this legislation was to protect the pension plans of the workers and ensure a secure retirement. Canada Post management have throughout the years and especially since 2008, been demanding an exemption from the valuation rule on solvency under the act as the likelihood of Canada Post being wound up is close to impossible.
Canada Post claims that solvency payments diverts important cash needed to maintain its operations and threatens its viability. In its submission to the Strategic Review in 2008, Canada Post made its position clear. Also, in a letter dated March 16, 2009 Moya Green past CEO of Canada Post reiterated the same position in a letter to Jim Flaherty, Minister of Finance in the Conservative government asking for pension relief. The following is the verbatim text of Canada Post’s position on the question of solvency valuation as put forward to the Strategic Review in 2008.
“3.3.2 More Effective Use of Available
Cash – The Problem of the
Pension Solvency Calculation
Canada Post has the largest pension plan among Crown corporations at $15 billion in assets – ranking ahead of Ontario Hydro and Quebec Hydro. The pension plan is indeed one of the largest in Canada and is forecast to double to about $30 billion by 2017. Since inception, the plan has met its investment objectives and has consistently earned returns above the median of other pension plans. It is fully funded on a going-concern basis. However, with the structure and size of the pension plan relative to Canada Post, the volatility of returns and discount rates result in significant fluctuations in required plan contributions and expenses.
Canada Post’s pension is regulated under the federal Pension Benefits Standards Act. This legislation applies to all entities falling under the legislative authority of Parliament and to any business that is largely an inter-provincial undertaking, including shipping, railways, airlines, telecommunications and broadcasting.
The pension plan is subject to various actuarial valuations for different reasons, including determination of required funding and expenses to be recorded on a going-concern and on a solvency basis. With the current surplus of 10%, Canada Post’s pension plan is more than fully funded on a going-concern basis, which indicates that on a long-term basis, pension assets exceed future obligations to be paid to pensioners.
But the rule relating to the solvency calculation poses a problem for Canada Post as it creates a significant and unpredictable drain, diverting cash that could be used for operating requirements and investment priorities. The solvency-basis valuation considers whether Canada Post would have enough money to purchase annuities to cover its existing pension liabilities should it be wound up. Since Canada Post cannot be wound up without an Act of Parliament, the likelihood of this occurring is remote. The pension solvency calculation is therefore theoretical, arguably not necessary, and potentially harmful to the Corporation’s ability to manage its cash.
The calculation of solvency is based on current market conditions and interest rates that can fluctuate substantially. For example, even a 0.1 per cent change in interest rates can cause a change to the solvency valuation of more than $230 million. In March 2008, we saw a $200 million fluctuation in the solvency calculation over a two-day period. When we are required to file a solvency valuation and the pension plan is in a solvency deficit, the Corporation has to begin injecting funds into the pension plan even in periods where the pension is fully funded on a going-concern basis.
As such, it requires the Corporation to put theoretical pension considerations ahead of current operational requirements. This rule draws much-needed cash away from capital investment requirements. Between 2003 and 2006, Canada Post made a total of $669 million in solvency payments to its pension fund to meet this theoretical solvency rule.
There is precedence in other jurisdictions within Canada for providing exemptions from funding pension solvency deficits for organizations of similar status as Canada Post. The Government of Ontario allows pension plans to exclude future automatic indexation from the solvency liability calculation. In Alberta, Crown corporations are generally exempt from solvency valuation calculations. The Quebec government provides a similar exclusion to municipalities, universities and transit commissions. And, Nova Scotia has legislation that grants municipalities an exemption to fund solvency deficits that are less than 15 per cent of a solvency liability.
As long as Canada Post’s pension remains fully funded on a going-concern basis, and to ensure that cash funds are available to protect service were investing in infrastructure and technology, it is recommended that:
• The pension solvency rules governing Canada Post be changed to allow for an exemption from funding solvency deficits; or
• As long as Canada Post is majority owned by the Government of Canada, that the Government provide a guarantee or promissory note that, in the unlikely event that Canada Post is wound up (through legislation) and a solvency deficit exists at that time, the Government will fund any deficit. This does not require any cash outlay by the Government, but would allow Canada Post to preserve its cash for essential investments.
Relief from the solvency calculation could free up approximately $360 million based on current estimates”
The Conservative government did not accept Canada Post’s recommendation which would have greatly contributed in solving the problem preferring instead to “keep its options open” regarding the future of the public post office. As an alternative, it granted Canada Post pension relief including permission to extend their payments over several years. The Conservative government even passed legislation allowing the corporation to unilaterally raise premiums which violates the contract with the CUPW. Also, on the question of solvency deficit funding, Louis Lang documented the following in an article titled “Canada Post Must Fulfill Its Obligations to the Pension Plan!” which appeared in the Sunday e-mail on two different occasions several months ago:
“The corporation’s plans regarding the pension plan are outlined in 2012 Annual Report but they clearly have no intention of having a full public discussion of all the facts.
On page 34 of the Annual Report under the heading “Outlook 2013” we find the following:
“Pension and employee future benefit costs will continue to be a major challenge. Most defined benefit pension plans across the country face ongoing significant funding challenges in light of demographic shifts and a prolonged period of low interest rates and volatile investment returns. Plan sponsors such as Canada Post are required to eliminate these funding shortfalls, over time, and they are exploring innovative options to address the crisis, including potential regulatory relief”.
“In the short term, Canada Post plans to continue using the legislation that allows Crown corporations to better manage their funding obligations, and will again seek approval of pension relief in 2013 to reduce its special solvency payments. However, given that under current legislation relief is capped at 15% of plan assets, we expect to reach the relief limit in early 2014.”
The Report points out under “Operating Activities” that there was an increase in cash generated from $196 million in 2011 to $310 million in 2012 mainly because Canada Post reduced payments into the pension and other post-employment and long-term benefit payments. In April 2011, amendments to the regulation of the Pension Benefits and Standards Act 1985, came into effect allowing companies with federally regulated pension plans to reduce their payments if ministerial agreement is provided.
The following quote from page 50 of the Report reveals how Canada Post avoided making the required special payments to eliminate a shortfall in the fund as required by the Act:
“Special contributions to the Canada Post Registered Pension Plan are dependent on changes in discount rates, actual returns on RPP assets and other factors such as plan amendments. Employer special contributions of $63 million were made in 2012, compared to $219 million in 2011. In 2012, the Corporation used the funding relief permitted by legislation. Without this relief, an additional $897 million in special solvency contributions would have been required from the Corporation. The aggregate amount of the funding relief as at December 31, 2012 is $1.3 billion. Based on the expected actuarial valuation, 2013 special contributions are estimated at $28 million.
“It is the Corporation’s intent to seek agreement from the Ministers to use the relief permitted by legislation beyond June 2013 to obtain a reduction of 2013 special solvency contributions. Without the relief, the Corporation’s contributions would increase by approximately $1.2 billion. The aggregate amount of the relief at the end of 2013 is expected to total $2.4 billion. As the aggregate amount of the relief is limited to 15% of RPP assets, the Corporation expects to reach the limit in early 2014, putting significant pressure on the Corporation’s cash resources. We are evaluating all options including regulatory relief and changes to plan design to help address these challenges.”
Thus the corporation was able to use amendments to the Act to avoid making their required contribution to the pension fund. Therefore, by the end of 2013, the actions of Canada Post in refusing to make their required contribution will cause an added shortfall in the plan of $2.4 billion. An important example is the way the corporation is avoiding its responsibilities for the past year. According to the Annual Report, in 2012, Canada Post recorded an actuarial loss of $780 million but they intend to use the legislative loophole to make a special contribution of $28 million which will add to the problems facing the Pension Plan.
But it doesn’t end there. Harper’s infamous omnibus budget Bill C-45 (the Jobs and Growth Act) helps the corporation to further shift the burden of the pension plan deficit on the backs of the workers. As of January 1, 2013, the Bill allows the cap for employees’ share of current service costs to be increased from 40 to 50 per cent. The Annual Report declares on page 50 that Canada Post “intends to share current service costs with employees on a 50/50 basis.” This plan has never been publicly announced or discussed.
The corporation claims that it is evaluating all options to deal with the problems facing the Pension Plan but it is clear that taking up the responsibility as plan sponsor to make special payments to cover all shortfalls is not one of the “options.” This is the height of hypocrisy since it was Canada Post along with other major corporations who pressured the Liberal government in the mid 1990’s to pass legislation allowing public service pensions including the CPP to be invested in the stock market. This has already resulted in billions of dollars being transferred from pension plans into the coffers of monopoly corporations.
Canada Post also did not hesitate to take hundreds of millions of dollars from the Pension Fund during periods when the fund was in surplus.”
The federal legislation governing the pension plans requires a plan sponsor, in this case Canada Post, to erase any solvency deficit over five years. In the absence of any special relief measures this would mean that Canada Post would have to make special payments of more than $1 billion a year. In 2011 the Government of Canada put in place measures to allow pension plan sponsors, such as Canada Post, to put off special payments. This letter of credit is valued as up to 15% of the market value of the plan assets. Canada Post will exhaust its letter of credit sometime close to June 2014. At that point, Canada Post will need to start injecting close to $1 billion per year into the pension plan in special payments.
Canada Post says it cannot afford to make special payments that large. The facts clearly indicate that Canada Post has systematically been avoiding solvency deficit payments to the pension fund by constantly asking for pension relief and requesting exemptions from the solvency valuation test. In this way, it negates the just claim of postal workers on a part of the added-value they produce to be put in the plan as a safeguard and it diverts the money which belongs to the workers as differed compensation into cash for the corporation to finance its operations and subsidize postal transformation.
In 2009, Moya Green asked the government for an exemption from the solvency valuation rule and for pension relief over several years so as to preserve cash for the $3 billion Postal Transformation Project. There was no problem obtaining pension relief for the project. Canada Post undertook the Postal Transformation Project with the aim of “modernizing” mail processing operations and postal infrastructures so as to make the post office more appealing for privatization. The Postal Transformation Project was a prelude to privatization. Monopoly right trumps public right! That is the slogan of Canada Post and the Harper government bullies.
Making solvency deficit payments to the pension plan is important to protect the right of postal workers to a secure retirement especially when we consider the fact that we live within the conditions of a voracious monopoly capitalist system where job insecurity due to impermanence of companies, whether big or small, is an inherent feature of that system which seeks to constantly increase the rate of profits for the capitalist class through intense competition. The result of this competition leads to further monopolization and the wiping out of many other companies and even other monopolies.
Transport Minister Lisa Raitt is in charge now of Canada Post and her office refuses to say what measures are being discussed in order to deal with Canada Post’s operational requirements and the pension solvency deficit emphasizing Canada Post is “responsible for its own operational decisions”. This attitude of the government shows that it is ready to let Canada Post sink on its own without showing any concern for the need of the economy to maintain this most valuable public asset which is a key part of the overall Canadian infrastructure.
By insisting that Canada Post is “responsible for its own operational decisions”, it is sanctioning Canada Post attempts at creating a “crisis” over the pension issue and washing its hands of any responsibility it has as the majority owner of Canada Post which is to fully assume the pension solvency deficit in case of a wound up by act of Parliament, thus ensuring the right of postal workers to a secure retirement.
By placing Canada Post into a position of having to make large payments into the pension plan out of its operating revenues, the government is also warranting to the capitalist class close to $1 billion in the year 2014 alone and in every consecutive year during a five year period will be taken out of Canada Post and handed over directly to them in the form of investments in market stocks and bonds. Since the federal legislation was passed allowing pension funds to be invested in this way, pension funds have become huge pools of capital which is used to further grow capital for the capitalist class. This money could very well be used to enhance retirement benefits and the overall compensation package paid to the workers which they earn as producers. Postal services could also be expanded to the benefit of the economy and the society.
In a nutshell, Canada Post and the Harper government are not really interested in solutions to the pension solvency deficit. Together, they want to create a crisis so that the post office can be further privatized and deregulated to serve monopoly right in this country while at the same time use the situation to demand contract concessions from the workers and impose service cuts to the Canadian people. This is the main aim of Canada Post and the Harper government at this time.
Within these circumstances, the union should not get involved in lending any credibility to the “pension crisis” being instigated by Canada Post and the Harper government at this time. It must boldly refuse to make contract and pension concessions to Canada Post. It must insist that both Canada Post and the Harper government render accounts for their part in having allowed the solvency deficit to grow. The Harper government must also say why it does not want to exempt Canada Post from the solvency deficit rule contained in the federal legislation and assume the pension solvency deficit in case of a wound up by act of Parliament.
An arrangement for solvency deficit payments could even be made stretched over several years allowing Canada Post to carry on with its mail operations and of providing postal services to the Canadian people. This is yet another solution to the problem and one which would protect our Defined Benefit Pension Plan. We must win this pension fight!
Note to the readers: The Sunday e-mail will not be published until January 12, 2013 on account of the festive season and due to the fact that I will be on holidays for three weeks starting December 24, 2013. In the meantime, if important developments occur at the place of work, the Sunday e-mail will report and assess them. The Sunday e-mail will be closely following the pension solvency deficit issue in the New Year and calls upon everyone to be pro-active and fight for their rights and the rights of all as the only way to ensure our security and dignity. Season’s greetings to all and best wishes for the upcoming New Year.