Air Canada opts out of pension funding regulations, signaling funding improvement of defined benefi

Air Canada opts out of pension funding regulations, signaling funding improvement of defined benefi

June 3, 2015 at 9:00 AM

On May 26th, Air Canada announced it was opting out of the Air Canada Pension Plan Funding Regulations, 2014, effective immediately. Under these regulations, Air Canada was required to make solvency deficit payments of $200 million per year, on average, over a seven-year period. The agreement also contained several restrictions, including a prohibition on share repurchases, dividends, executive bonuses and plan improvements.

The special regulations extended financial relief to Air Canada at a time when the company had a $4.2 billion deficit in its pension plan. Without the relief, Air Canada would have been required to contribute in excess of $800 million annually to its pension plan starting in 2014, payments that threatened to return Air Canada to bankruptcy.

As a result of opting out, Air Canada will now fund the pension according to normal funding rules. Air Canada will make pension solvency payments of approximately $90 million in 2015 versus the $200 million it would have had to contribute under the special regulations for past service costs, in addition to the $125 million they will pay in current service costs. The plan remains in a $445 million deficit given that, under normal funding rules, a plan’s financial standing is based on a three year average.

The Air Canada Pension Plan Funding Regulations represent an important example of labour working with the company and the federal government. The deal preserved the defined benefit pension plan and laid the ground work for a financial turnaround. At 2011 negotiations, initially the company tried to convert the DB plan to a DC plan for all active employees. Eventually, Air Canada agreed to keep the DB plan for current employees but sought out to shut down the DB plan entirely for new hires. The union resisted and, for this reason, new hires are in a Hybrid DB/DC pension plan. At a time when private sector defined benefit pension plans are on the decline, the revival of Air Canada’s pension plan demonstrates the sustainability of DB plans over the long term.

A stable, well-funded Air Canada pension plan is in the best interest of the company, active Unifor members and Unifor retirees. As plan members, you are in a better financial position now that the plan is in surplus.

Unifor members played a critical role in ensuring the sustainability of the pension and must be recognized for their contributions. Together, participants from all unions in the Air Canada pension plans made sacrifices in the form of benefit reductions. These sacrifices reduced the deficit by approximately $1.0 billion.

Ultimately, it’s been Unifor members who have helped make Air Canada the number one airline in North America five years in a row.

With negotiations approaching the final stages, the company’s May 26th pension announcement solidifies Unifor’s legitimate claim to improved compensation for all members.

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