CP's pricey pensions a big hurdle to labour deal

The Globe and Mail

A Canadian Pacific Railway freight train runs along the Bow River and distant Rocky Mountains on the main line near Lake Louise, Alta.

(LARRY MACDOUGAL/LARRY MaCDOUGAL/THE CANADIAN PRESS)

Canadian Pacific Railway Ltd.’s battle with striking union workers comes down to a benefit that the company says it can’t afford any more – the $73,000 annual pension.

A veteran locomotive engineer will collect that much, based on the job’s average base salary of $105,000 in 2011.

In an internal memo to staff, CP management has appealed directly to striking employees to accept pension reform, saying the Teamsters Canada Rail Conference is misguided in opposing changes crucial to the freight carrier’s turnaround strategy.

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CP has 16,200 employees, but 18,000 retirees.

The Calgary-based company’s focus on curbing retirement payouts comes as many major corporations face a wide gap between pension asset values and obligations, forcing them to make huge increases in pension contributions. Current lacklustre financial markets and low rates make it even more difficult for companies to bridge that gap.

More than 4,800 members of the Teamsters walked off their jobs on Wednesday, forcing CP to shut down freight deliveries across the country and leave everything from coal and grain to cars and potash stuck on the tracks.

The Teamsters represents conductors, engineers and rail traffic controllers.

The railway is seeking to reduce the generous payouts for future retirees, as well as scale back health, dental and prescription drug benefits for its new pensioners.

Under the existing system, the average annual pension for a qualifying engineer is $73,000 a year but could be as high as $92,600, according to internal data.

The company argues that union brass must acknowledge the looming pension crisis by making concessions, either through a negotiated settlement or binding arbitration.

“Whichever way the Teamsters prefer, we simply must address our legacy pension, increase our competitiveness and minimize collateral damage to our customers’ business,” Peter Edwards, CP’s vice-president of human resources and industrial relations, said in the memo.

Management stresses that there will be no impact on current retirees while existing engineers and conductors will be credited for past pension entitlements, meaning most veteran workers will see modest reductions.

But Teamster officials have said they vehemently oppose CP’s proposals to dilute defined-benefit plans. The union also warns that the company intends to place new hires on diluted pensions that limit benefits, which would represent a cut of up to 40 per cent in retirement payments.

Union officials say it’s a hard life for their members, emphasizing that engineers and conductors work long stretches of time away from family and friends, and deserve more days off each month. Conductors, who averaged $85,000 in base wages in 2011, and engineers are both paid based on distanced travelled for work duties.

Over the past three years, CP has made large lump-sum payments to reduce its pension solvency deficit, which was pegged at $673-million on Jan. 1, 2011 – the latest figure available. The freight carrier made voluntary contributions of $500-million in 2009, $650-million in 2010 and $625-million in 2011.

CP said the Teamsters already agreed to less costly pension rules at rival Canadian National Railway Co.

“The Teamsters will not agree to those same changes with us, but they have taken strike action that is now resulting in our business shifting to the other more profitable railway, where members of the Teamsters represent employees with lesser pension provisions than we are offering,” Mr. Edwards said in his memo.

Federal Labour Minister Lisa Raitt plans to introduce a back-to-work bill on Monday, when the House of Commons resumes sitting after week-long break. Another 2,000 CP workers have been laid off due to the work stoppage, and a further 1,400 employees could be sent home on Monday.

The labour dispute “is about the financial viability of the company going forward and the urgent need for change that has been well-documented in recent months,” Mr. Edwards wrote.

U.S. hedge fund Pershing Square Capital Management LP capped a months-long proxy fight against CP last week, resulting in the ouster of chief executive officer Fred Green and the appointment of seven new directors to the railway’s board, including Pershing Square CEO Bill Ackman.

Mr. Ackman described CP as an industry laggard that needs to cut costs and boost revenue, but the strike highlights the difficult process of streamlining the railway’s operations because union leaders have their own agenda to improve wages, benefits and working conditions.

“The Teamsters seem to recognize the significant business issues facing Canadian Pacific, but they have been unable to close the significant gap between our positions that will be required to support the future prosperity of this company,” Mr. Edwards wrote.

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Canadian Pacific Railway
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