Pension Problems

The recent move by Air Canada bosses to scrap the firm’s long-established employee pension plan, and the on-going blow-out fight over this between them and the workers there shows a crying need for pension reform—not only at Air Canada, but our whole economy. And this reform should be aimed at giving people a greater say in how their pensions are managed.

New Air Canada head, Hong Kong magnate Victor Li, who bought the troubled firm last fall, wants to scrap the current “defined-benefits” plan, which guarantees how much a person gets when they retire, to a “defined-contribution” plan, which only guarantees what the company agrees to contribute into the plan and leaves investment option to the employees individually.

At a glance, it doesn’t sound like much of a change. But when it is applied the consequences are staggering. One could say the proposal is a victory for the rights of individual workers to decide their own economic fate. But this supposed victory is negated by the fact that each worker will bear the burden of investment risk.

Air Canada is under the control of Li’s personal management firm called Trinity Time Management Inc. And it currently bears the risk of investing pension money. This is as it should be for three reasons.

First, it is a fundamental economic fact that companies profit from and are given their practical value by the collective labour of their employees. In other words, companies accumulate wealth by selling the goods and services created by workers in the marketplace (which, by the way, is also created mainly by workers via their massive investment of consumer dollars). They should be expected to use this wealth and resources to help secure their employees’ retirement.

Second, markets—especially financial markets--under the sway of capitalist economics are often unstable and very unpredictable to almost everyone. It takes teams of experts, analysts and investment managers with the required training and ready resources to manage money under changing market conditions. Companies, especially larger firms like Air Canada, have the resources and connections to enlist these experts in making secure investments. Individual workers do not.
Third is simply the matter of survivability. Companies can usually afford to take some degree of money-loss, even substantial ones, and keep right on moving. Most workers can’t.

It’s easy to see why Li wants it this new type of plan. This way his company simply makes contributions to the plan as agreed to by collective agreement. What happens to the money after that is no longer its concern?

What's worse is that this development is not unique to Air Canada. In fact, pensions have been under corporate attack for almost 20 years in the United States, where almost 70 per cent of workers are now without pension benefits—as opposed to 30 per cent in the 1970s. This is in part due to pension busting (and union busting) legislative and regulatory changes by the Reagan Administration.

In the last few years, due to the repeated stock market crashes—where pension plans suffered greatly, many company bosses have become even more interested in dumping “defined benefit” plans. If they can get workers to bear the risks, and any potential losses that go with them, why should they keep it? After all, less risky ventures can attract more investor interest, and thus they can demand higher stock prices.

The problem obviously goes much deeper than what type of pension workers should have. It is an issue of control over the plans and how they are used. Workers, who are the supposed beneficiaries, have little say in setting policy for their plans. Most plans are under the control of corporations and investment agencies.

Even many fully union-owned plans are administered by actuaries and investment managers with little accountability to the elected union trustees or the members.
While companies that own “defined benefit” plans may bear the risk, they also bear the control. Which means they can choose whether to change the nature of their plans. Most unionized firms, like Air Canada, have to negotiate any changes with their employees collectively. However, even this still keeps most of the control in the hands of the company, which owns the plan, and the un-elected managers that run it.

With this situation, it is no wonder that so many firms are pushing to either transfer pension investment risk on to workers or gut them altogether.

What is needed is for the ownership of pension plans to be transferred to democratically elected trustees and directly hired investment managers who are accountable to the workers who earn them. Where necessary, smaller less-secure plans can be merged together with larger ones to minimize risk and pool resources to hire trained management teams. In addition, education initiatives directed toward workers to encourage them to take a more active role in understanding how pension plans operate, and how they are managed.

Workers who pay into these merged plans should have portability rights, regardless of who they work for. Employers would simply contribute to these plans, and they would be self-managing. Rather than workers individually bearing the risks, these collective plans would bear the risk on behalf of everyone. This may not be as flexible as workers individually managing their retirement savings. But it is it certain to guarantee the most fundamental tenant of any pension plan: security.
These ideas may sound like wishful thinking or dreamy idealism. But this is the way many pension plans operate in Europe. Portability rights for workers are a pipe dream in Canada. It is reality in Germany. Multi-pension trusts democratically managed by elected boards seem like utopia in Canada. They are a fact in Italy.

If workers are to be the beneficiaries these huge pools of capital, then it only makes sense that they have a say in running them. This way, grueling situations like the one at Air Canada could be avoided and retirement security could be more of a guarantee.