UP! How the NL government and its unions solved their pension problem

In a country characterized by increasingly confrontational labour relations, an unlikely story of cooperation and negotiation emerges. Are there lessons for the rest of the country?

It took two years of wrangling -- and over a decade to get to the wrangling stage -- but on September 2, 2014, the government of Newfoundland and Labrador announced that it had reached an agreement on pension reform with five of its employees' labour unions.

In an era of increasingly hostile labour relations, the NL government and its unions managed to negotiate an agreement. Unions now have equal say in the new corporation that is to be established to administer the revised plan.

Factors for success

NAPE, CUPE, NL Nurses' Union, Association of Allied Health Professionals and IBEW knew that the province's Progressive Conservative premier was an avowed supporter of defined benefit pension plans. This was a critical factor for success. Defined benefits plans usually help guarantee a decent quality of life by guaranteeing the benefits that employees can access in retirement, allowing for greater security. 

Increasingly, employers are either eliminating workplace pension plans outright, sometimes replacing them with RRSP contributions, or trying to convert them to defined contribution plans. These plans only guarantee how much an employee will pay; their retirement income and benefits are unpredictable and can vary dramatically. For unions that have won defined benefit plans, holding on to them has emerged as the definitive struggle in recent years.

Many defined benefit plans have also accumulated unfunded liabilities, where the projected expenses required to meet guaranteed obligations exceeds the amount of money set aside. This can be due to a variety of factors: poor investment or management of the plan, failure by the employer to make annual contributions and the simple fact that people are living longer and thus drawing pensions for a longer period after retirement. This was what Newfoundland and Labrador faced. Pension liabilities, together with other post-retirement benefits, comprise 74 per cent of the province's $9.8 billion debt.