Pensions big sticking point in CP, Air Canada contract talks

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Pension reform is casting a shadow over contract talks at Canadian Pacific Railway Ltd. and Air Canada as labour strife heats up at two of the country's largest transportation firms.

CP negotiators recently delivered a presentation to union officials on revising the formula for defined-benefit plans, which provide a guaranteed payout at retirement. The Calgary-based railway, which is under significant pressure from major shareholders to cut costs, has floated several ideas, including the introduction of less-costly defined-contribution plans for new hires and capping post-retirement benefits.

"The desired pension plan model is one that is fair to our employees, aligns with the industry and allows the railway to remain competitive," said CP spokesman Ed Greenberg.

But the Teamsters Canada Rail Conference hired its own pension expert to examine CP's proposal, rebutting management's figures. The dispute is now headed for a conciliation phase, and if the impasse lingers, nearly 4,800 unionized conductors, engineers and rail traffic controllers will be in a position to approve a strike mandate in May.

Air Canada management is also struggling to find common ground with union officials on reducing retirement costs.

The pension fights illustrate the growing tension between large corporations that are trying to contain ballooning costs for retirees, and workers who are trying to maintain those benefits. Ultra-low interest rates are exacerbating the situation, since they make it more difficult for pension managers to earn the investment returns needed to fund retirements.

Air Canada's negotiators are attempting to water down the pensions of ground crew and mechanics who take early retirement before age 55. Last week, members of the International Association of Machinists and Aerospace Workers turned down a tentative agreement reached on Feb. 10, underscoring wide gaps at the bargaining table.

In the airline's rejected proposal, employees who opt to retire at age 54 after 25 years of service would have seen their annual pension entitlement of $31,775 effectively chopped by roughly half to $16,783 a year. The measure would have taken effect in 2014.

But the proposal had preserved a crucial feature for IAMAW members – "unreduced" pension payouts for those who go for the freedom of retiring at age 55 with 25 years of service, or "80 points."

Air Canada estimates that it will have pension funding obligations of $341-million this year and $393-million in 2013. Payments are forecast to soar in 2014 because a cap on pension contributions previously negotiated in 2009 with the machinists and other unions will expire at the end of 2013.

The 8,600-member IAMAW is Air Canada's largest union, representing mechanics, baggage handlers, cargo agents, aircraft cleaners and electricians. The union could be in a position in mid-March to call a strike, if necessary, though labour leaders emphasize they want a negotiated settlement.

Beyond pensions, several other issues still have to be resolved, including wages, scheduling night shifts and mandatory overtime, said Chuck Atkinson, president of IAMAW district lodge 140.

Pensions are also a major issue in contracts talks between the Air Canada Pilots Association and the airline's management.

At CP, bargaining has been complicated by pressure from U.S. activist investor Bill Ackman to replace CP chief executive officer Fred Green with Hunter Harrison, who retired as CEO of Canadian National Railway Co. in late 2009.

Teamsters officials say CP executives have been distracted by criticisms from Mr. Ackman's Pershing Square Capital Management LP, which is the railway's largest shareholder.

CP's Mr. Greenberg countered that the railway is staying on top of pressing issues. "Through the collective bargaining process, CP is seeking to achieve changes to legacy pension and post-retirement benefits to make them industry-comparable," he said.