Fraser Forum

As lockout looms, Canada Post should not be in the retirement business

Printer-friendly version

As Canada Post prepares for a lockout, observers should ask one simple question regarding the demands of the Canadian Union of Postal Workers (CUPW). Would the workers receive such remuneration in the private sector?

The answer may seem obvious, but its explanation shows why union bosses are jeopardizing the futures of their members.

The key dividing line between the CUPW and Canada Post management, among many demands, is defined-benefit pensions. The CUPW wants Canada Post to be on the hook for specified retirement payments for decades to come—irrespective of whether the funds invested in the present garner healthy returns or flop.
Canada Post executives say this is simply "not affordable," but the real problem is structural. It’s no accident that defined-benefit plans are ceasing to exist in the private sector, serving only two per cent of current American workers. In Canada, only 3 million private-sector workers have pension plans, and a minority of those have defined benefits. Between 2000 and 2014, the number of workers with defined-benefit plans fell by more than a third.

As many defined-benefit plans go belly up under the weight of unfunded liabilities—promises beyond the assets available to pay them—there’s growing recognition that these plans are simply unsustainable: employees should receive what their invested dollars earn, and not numbers dreamt up in collective-bargaining agreements.
The one sector in Canada where these plans have survived is government, but inevitably these too will come crashing down. As has happened elsewhere, first the taxpayers bail out the pension schemes and then either taxpayers push back or the state is unable to afford the growing expense.
Already, Montreal taxpayers see 13 per cent of their city’s operating budget go to fund pensions, and the Canadian Federation of Independent Business estimates a ticking time-bomb of $300 billion in unfunded liabilities for federal and provincial public pensions. Detroit and Puerto Rico have shown where this road leads, and not even a constitutional obligation could save the U.S. territory’s workers from default.
Crown corporations, ideally not in business to waste money, should pay in line with what workers receive elsewhere. However, the comparison of private-sector compensation is particularly pertinent to Canada Post, because it’s hiding behind precarious monopoly protection (for domestic letters of 500 grams or less).
Just as peer-to-peer drivers with Uber have eroded the premiums of the taxi cartel in various Canadian cities, so too will competing delivery options undermine Canada's easy revenue—due to explicit legislative liberalization or creeping substitutes. The Frontier Centre for Public Policy, based in the Prairie provinces, found that when Germany privatized its postal service, prices fell by between 16 and 30 per cent, a big win for consumers.
Keep in mind that, according to Frontier’s Adrian Vannahme, in the long-run the postal workforce benefited, since the private entity was more adept at innovating and finding new revenue streams. In fact, a privatized Deutsche Post was able to expand its workforce in subsequent years.
The CUPW has many options at this point, but its vulnerability goes far beyond this lockout and what it describes as being starved into submission. If the union and its workers really want iron-clad returns of defined benefits, they cannot rely on Canada Post for that. Canada Post should not be in the retirement business to begin with.
Rather than kill the golden goose, union leaders could bypass Canada Post management and take up this responsibility themselves, facilitating tailor-made annuity services for their members. Better still, they could arrange different options for members to choose from, since each member has his own time and risk preferences, and defined benefits necessitate lower-risk investments and lower returns.


Subscribe to the Fraser Institute

Get the latest news from the Fraser Institute on the latest research studies, news and events.