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
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
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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