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How the government and unions solved their pension problem

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It took two years of wrangling—and over a decade to get to the wrangling stage—but on Sept. 2 the Government of Newfoundland and Labrador announced an agreement over pension reform with five of its employees’ labour unions.

What was notable about the deal was that in an era of increasingly hostile labour relations—in the face of massive protest, Nova Scotia recently imposed a bill to restructure health care locals with no union consultation—the NL government and its unions negotiated an agreement. Even more surprisingly, the deal opens the path to joint management of the pension plan, with unions now having equal say in the new corporation that is to be established to administer the revised plan.

In an era of hostility and confrontation between public sector unions and austerity-driven governments, how did the parties in Newfoundland and Labrador manage to talk their way to a mutually agreeable, negotiated resolution? What challenges did they face in that process? And are there lessons to be learned from the experience, for other provinces, employers, and unions pursuing pension reform in Canada today?

Factors for success

As with many things, the agreement came about as the result of hard work, the fortunate alignment of circumstance, and some unlikely flukes.

A key factor in reaching the agreement, according to the unions that negotiated it (NAPE, CUPE, NL Nurses’ Union, Association of Allied Health Professionals, and IBEW), was that the province’s Progressive Conservative premier, Tom Marshall, was an avowed supporter of defined benefit pension plans. Herein lies the crux of pension battles in Canada today.

Defined benefit plans—the gold standard for pensions—means benefits are guaranteed, so employees know precisely what they’ll have coming to them in retirement. It means they can plan their retirement lives with greater security, and usually with a decent quality of life. Increasingly, employers are either eliminating workplace pension plans outright, sometimes replacing them with RRSP contributions, or trying to convert them to defined contribution plans (where the employees know what they have to pay in, but their retirement income and benefits are unpredictable and can vary dramatically). For unions that have won defined benefit plans, such as the public sector unions in NL and other provinces, holding onto them has emerged as the definitive struggle of recent years.

Many defined benefit plans have also accumulated what is referred to as ‘unfunded liability’. This essentially means that the projected expenses required to meet the guaranteed obligations to retirees under the plan, exceeds the amount of money set aside for that purpose. This can be due to a variety of causes: poor investment or management of the plan, failure by the employer to keep up with their contributions (some employers have taken ‘holidays’ from their contribution obligations), or the simple fact that people are living longer in this day and age, and thus drawing pensions for a longer period after retirement than they did when the plans were set up.

This is the situation Newfoundland and Labrador and other provinces have faced. Pension liabilities—together with other post-retirement benefits—comprise 74 per cent of the province’s $9.8 billion debt, according to the auditor general.

This was the situation the unions and government sat down two years ago to try to fix.

At the time, Marshall was provincial finance minister. Pensions had been on his mind since he entered politics 11 years ago. He recalls, after first being elected, reading the auditor general’s report on the financial state of the province. As he flipped the pages, he felt confident about the challenges ahead — until he got to the section on pensions.

“When I read that, I felt overwhelmed,” he admits, laughing now with hindsight. “I thought, oh god, this is so big. We’ll never get through this. I can see why so many other governments never dealt with this. They all kind of kicked the can down the road.”

Prior to replacing Kathy Dunderdale as premier, Marshall assumed the role of finance minister three times. Each time, he tried to tackle the pension issue. And to do so, he reached out to the unions.

“The first time, I had discussions with union leaders about it,” he says, speaking to me by phone. “I was no expert in pensions myself, but I knew they had expertise, so I talked to them. I said, this is getting out of hand, we have to deal with this, and we’ve got to do it together.”

But each time, obstacles got in the way. Marshall wanted the unions to take over joint management of the plan. The unions said not a chance, so long as the unfunded liability was there — they felt that was government’s fault and government’s responsibility to deal with.

Marshall, for his part, faced difficulty getting support from his cabinet colleagues to tackle the issue. It was a daunting and politicized issue, and many preferred avoiding it, even though he felt the urgency would only grow the longer they put it off. But many of his colleagues balked.

And then he became premier.

“And it’s easier, when you’re premier, to convince your colleagues,” he laughs modestly.

Building relationships, building trust

Marshall was in fact an interim premier, appointed when Dunderdale resigned in January. He recently completed his nine-month stint as premier and is planning to retire from politics next year.

Unions had had plenty of discussions with Marshall in previous years, particularly during his stints as finance minister. So they had time to build a relationship with him.

Carol Furlong is President of NAPE (Newfoundland and Labrador Association of Public and Private Employees, the largest union in the province. She figured that with Marshall as premier, there was a chance to reach resolution on the issue.

“We knew that Tom Marshall favoured a defined benefit plan,” she says. “He was a champion of defined benefit pension plans. In fact, when it comes to the Canada Pension Plan changes, Tom Marshall, both as minister of finance and as premier — he’s championed that cause.

“It didn’t go unnoticed that his view of the world was the same as ours, in that a pension plan is a very important asset for any employer. And not only employers, but employees; it affects people later on in life, their purchasing power and everything else.”

When asked if he supports defined benefit plans, Marshall doesn’t hesitate.

“I do,” he declares firmly. His conviction comes from experience and observation.

Photo by Graham Kennedy.
Prior to replacing Kathy Dunderdale as premier, Tom Marshall served as provincial finance minister three times. Photo by Graham Kennedy.

“Growing up, my family were merchants. Small retail storekeepers. Pensions were not part of our lives. Things happened in my life that made me realize the benefit of a defined benefit pension plan,” he explains.

Marshall says many of his friends and neighbours retired with defined benefit plans, “and [they] had a decent retirement. And then I realized, based on what I’d read and what I’d seen, that people who had a defined contribution plan, or RRSPs — they were not having a decent retirement.”

His convictions on the importance of a defined benefit plan opened the door to negotiations; so did his willingness to work with the labour movement.

“Pensions have become such an issue, everywhere,” he says. “Our province supported the work the Canadian Labour Congress was doing to get improvements to the [Canada] pension plan.

“We worked with people like Hassan Yussuff of the Canadian Labour Congress; he was the leader on that. But we were unsuccessful in convincing the federal government to bring changes.”

So when he became premier, Marshall reached out to the unions again.

“I had discussions with the now president of the Canadian Labour Congress, and I sought his advice. I talked to him about how I felt and I said, we got to do this, and we got to do it together. It’s too difficult for one side to force it through; we got to bring our brains together. He gave me his advice and much to all our shock, we got the job done!”

To negotiate, or not to negotiate?

But it wasn’t always an easy process; there were those on the union side who felt the unions shouldn’t get involved. It was the government’s problem, and to negotiate might mean having to compromise. Yet failing to negotiate a compromise might have resulted in a greater loss. However much unions might march and protest, the law is on the government’s side and ultimately gives it the right to legislate whatever changes to the pension plan it wants. It’s the sort of morally complex dilemma unions increasingly face, and there’s no easy answer when it comes to which course to take.

“We were aware that we had to do something,” recalls Furlong. “If we didn’t do something, we were very worried that government might do something. The plan is a legislated plan — government had the right to arbitrarily legislate changes to the plan without any consultation with the stakeholders.”

“So we were faced with a choice: sit back and do nothing and complain, but we said [to ourselves] that hasn’t worked for us, that’s gotten got us nowhere.” Or they could refuse to negotiate, as some people suggested, says Furlong, since the liability was the government’s, not the unions’.

“That might be true, but that’s not going to do anything to help us,” she says. “So we felt we needed to engage government over this and have some control over the solution.”

Key to making the decision to engage was basing their strategy on good, proactive research — and thinking ahead.

“Part of the issue for us at the time, when we looked at the lay of the land, was that we were engaging with a whole new landscape and we didn’t know what that landscape would look like,” Furlong says.

 “There were many times that government walked away, and there were a few times when [unions] said this is a critical issue to us and we’re not moving on it.” — Debbie Forward, President, Newfoundland and Labrador Nurses’ Union

There was, at the time, a pitched leadership campaign underway within the governing PC Party. One of the leading candidates, Frank Coleman, was a conservative business leader. Union research revealed that Coleman owned private liquor stores in Alberta, and they felt he was unlikely to be as open to negotiation (although he won the leadership vote, he subsequently resigned for personal reasons before taking office, triggering a second leadership convention that left Marshall in office for a longer period than anticipated). But that lay in the future, and given the unpredictability of that future, unions felt their best bet was to move proactively forward to negotiate a deal with Marshall.

Those discussions weren’t always easy, recalls Furlong. “They weren’t always positive, but they weren’t always nasty.”

“We’re dealing with two parties trying to achieve consensus. We’re not always there feeling that we’re achieving progress all the time…I think the earliest we left this office here in the period of a month was 11:30 at night. That was an early night for us. It was very intense, quite daunting and extremely challenging for us.”

Debbie Forward, president of the Nurses’ Union, agrees.

“It was a tough negotiation, there’s no doubt about that. There were many times that government walked away, and there were a few times when [unions] said this is a critical issue to us and we’re not moving on it. But we also saw when we needed to be flexible. We looked for a way to be flexible, but still remain true to our objectives,” she says.

“So there was a lot of give and take. We pushed government as far as we felt we could push them without walking away, and they certainly used that stick over us, of legislation. We recognized that that was a very big, legitimate stick that they could use.”

Yet the parties found common ground — for instance, in their joint desire to improve employment opportunities for the province’s youth.

“The positive part, that we said to government, was that we want young people to stay in this province,” says Furlong. “We have a major problem with our workforce population declining. Recruitment and retention is important to us. So we’re going to make this pension plan enticing to [young workers] to come into the workforce. And generally when people come into the workforce with a pension plan, they generally stay. That’s a benefit that people recognize and they don’t want to walk away from that. And we’re saying, we want you to stay here. We want you to come to the public service to work. We want you to stay here, we don’t want that brain drain. That was the thing we agreed on.”

Solidarity forever! But it’s harder than it sounds.

And it was something they had to work at. Five unions with different histories, different memberships, different styles of decision-making. Would it be possible for the unions to maintain a common front during negotiations?

“You know, when you’re dealing with multiple parties, multiple personalities, it’s not always as easy as doing it yourself,” says Furlong. “But we all entered this from the same perspective. We all wanted to ensure the pension plan was protected with the least impact on the members possible. So we all, philosophically, aspired to achieve the same goals. So that made it easier.

“And our province is not big — we all know each other, we work together on numerous projects,” she continues. “So it’s not like we were dealing with strangers. We know people’s personal lives. There’s that camaraderie. And we have a lot of respect for each other. Sometimes you have somebody that’s stronger at achieving some goal than others. At that table there was a lot of respect. We weren’t in an uncomfortable position. And the fact that we all agreed on this and reached consensus on this speaks volumes to the process. You’re working 18, 19 hours a day. I would never be called Miss Congeniality. But we all got along really well, which helped us.”

Forward agrees.

“We resolved our differences at our table, and we made sure we presented a unified voice when we presented to government, and I believe [we] really capitalized on the expertise within our union groups and used that in a positive way,” she says.

“When we knew that one union had an expertise in one area, we used that expertise when we met with government. We put whatever [separate] union hats we had aside, and knew we had to be unified.”

Playing on each others’ strengths helped them maintain solidarity. NAPE was the biggest player in the province by virtue of sheer numbers. But CUPE, while numerically smaller in Newfoundland and Labrador, had a staff of pension experts in Ottawa who played a key role in helping the coalition with research and strategy. Other unions contributed in other ways.

“Some unions had resources within their national union,” Forward concurs. “Having that knowledge was very useful, but then we also recognized the knowledge in-house, the expertise that some union leaders had built up within our province, understanding our pension plan — the intricacies of it, the history of it. It was all of us putting all of our heads together and drawing upon the various experiences we had to make sure we were as prepared as we could be.

“I think our province and the way we’ve worked together—our history—helped us,” she says.

“There was a high level of trust between leaders on that table. We made sure everyone’s voices were heard, from the leader of the largest group to the leader of the smallest group. We made sure everyone was connected, if we had a meeting where one member could not be present for some reason. It was never that one group moved ahead while another was left behind. We built consensus. It took us longer to build consensus on some issues than others, but we worked at it because we knew consensus would make us stronger.”

Trust, threats, and coincidence

Forward was adamant about the value of a government that’s willing to work together with its unions, as opposed to cultivating an aggressive or confrontational relationship with labour.

“It was done without confrontation,” she says.

“We were willing to give a little, and government gave a little as well. It sets, I think, a positive template for what positive things and what good can happen when you actually have meaningful discussion, consultation, and negotiations.”

Furlong agrees. She says it was key that the premier, and highly placed cabinet ministers—she, like Marshall, also credited recently retired Finance Minister Charlene Johnson for her hard work—stayed closely involved. And she says the cultivation of relationships over the years truly helped in this.

“We deal with government on a regular basis, probably a daily basis. We build a relationship. Sometimes it’s not always that congenial, but we do have that working relationship…And the premier was not out of sight, either. We had discussions with him as well. I think part of it was that there was a willingness from government [to talk], and we made it very clear to government that if they were to arbitrarily or unilaterally impose changes to the pension plan, that we would revolt.”

The process was not devoid of threats. But ultimately negotiation held the day.

“I believe they [government] truly did want to find a consensual solution, rather than go to legislation,” says Furlong. “Now the minister [of finance] herself showed me a document that she said she was willing to take to legislation. Do I take ultimatums like that seriously? No. I don’t deal with ultimatums. That didn’t make a change in our position. But I think ultimately we did come up with new and unanticipated ways to deal with the problems. And I think it showed itself in the results.”

Did Marshall consider using legislation, instead of negotiating?

“We looked at that,” he admits.

“But we didn’t really want to do that. We said we would, we were prepared to do that, but we didn’t really want to. It was in everyone’s interest to work this problem out.”

Former Finance Minister Charlene Johnson was instrumental in the successful pension reform negotiations between the provincial government and unions. Photo by Graham Kennedy.
Former Finance Minister Charlene Johnson was instrumental in the successful pension reform negotiations between the provincial government and unions. Photo by Graham Kennedy.

Sometimes remarkable flukes served to keep things going even “when it fell off the rails”. Marshall recalls one instance where negotiations broke down hopelessly. Finance Minister Johnson called him to let him know everyone had broken away from the table, and the differences appeared insurmountable. Depressed at the apparent failure, Marshall headed to the airport. He was flying from St. John’s to his hometown of Corner Brook that evening, and when he got on the plane, who should be on the same plane but Furlong and another senior NAPE leader. When they landed in Corner Brook, they decided to go out for dinner together, and talked over the stumbling blocks. By the time dinner was over, they’d come up with some ideas and the talks were back on.

Another time, he says, “it was going to fall off the rails, but we talked about how I was going to wind up the only premier who had had a chance at resolving this, and they were the only labour leaders who had a chance at resolving this, and we couldn’t be the ones who let it fall apart. And that we owed it to our citizens, and our children and grandchildren — and we were so close, we had to do it.”

Ultimately, government’s willingness to engage with its unions—rather than take an aggressive line—was key. Again, says Furlong, relationships and trust made the difference.

“The relationship we’ve always had with [Marshall] has always been very positive. He’s always been willing to meet with us and has never rejected a meeting. He might not always agree with us, but he’s always been respectful of who we are and who we represent.”

Marshall, for his part, is effusive in his praise for the unions. And he agrees on the importance of provincial governments and labour unions maintaining a working relationship, however difficult it might be.

“We’re going to disagree a lot when government is the employer. But we managed to work it out,” he says.

“We got to know the union leadership, and we know that they have a job to do just like we do. Sometimes you don’t agree and you go to court, or arbitration, or on strike. But you can also work it out too. If the willingness and the trust is there you can work it out. And we did.”

Lessons to learn

Mary Shortall is President of the Newfoundland and Labrador Federation of Labour. She was not involved in the negotiations, but she’s thrilled at what the unions and the province accomplished, and proud of the work they put into it.

“It’s huge, really. [Pension reform] is something that’s happening in every province, and some of the provinces have had a lot less success,” she says. “It shows a couple of things. No matter who the government is, getting together and negotiating together and having your homework done on the impact it will have on your members, fiercely working for what’s best for your membership, and strategically planning — it all pays off.

“That [research] is really important. [The unions] paid particular attention to the reality of the public sector; the age of retirement in recent years — they looked at the demographics. It was really clear that all the parties at the time…looked at what was the best deal.”

Another lesson, all of them agree, was that defined benefit pension plans are important and can be protected in spite of the increasingly aggressive lobbying of corporate interest groups.

“Keeping a defined benefit plan is really important,” says Shortall. “It’s the difference between dignity and despair in retirement.”

“People are living from paycheque to paycheque,” says Furlong. “Any increase in contributions for anyone for anything is a hardship. Our members are no different, and at the end of the day we need to make sure that people have some ability to enjoy retirement without heading off to a food bank.”

“Keeping a defined benefit plan is really important. It’s the difference between dignity and despair in retirement.”  — Mary Shortall, President, Newfoundland and Labrador Federation of Labour

Shortall concurs. This is a victory she hopes will inspire unions across the country.

“It really shows for us how action can work. And it’s really set a template for the rest of the country now, which is a victory for us,” she says.

“It shows that no matter who the government is, we need to be on top of the issues and be optimistic that change can happen. As unions, we have two ways of dealing with issues: talking about it, or going to the street. We have done both, and we will do both. But when you can talk to government about these issues, it certainly helps.”

Marshall says that if there’s a take-away lesson for other provinces, it’s about the importance of government working together with the labour movement.

“What I would say [to other provinces] is that the union leadership understand this issue as well as we do,” he says.

“I would say to other governments, before you move with legislation, I would suggest you engage with the union leadership and make an effort to work it out. Everyone understands the problem and that we got to fix it. Let’s do it now.”

(A version of this article was featured in the Canadian Labour Rising series on rabble.ca on Oct. 16, 2014 under the title ‘How the NL government and its unions solved their pension problem‘.)


Editor’s note: If you would like to respond to this or any article on TheIndependent.ca, or if you would like to address an issue we haven’t yet covered, we welcome letters to the editor and consider each of them for publication in our Letters section. You can email yours to: justin at theindependent dot ca. Not all letters will be printed, but all will be read.

 

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