Pension Switch Puts Workers' Futures at Risk
Sep 19, 2007
MTS Allstream has recently proposed changes to the pension plans of hundreds of employees that are part of the Telecommunications Employees Association of Manitoba (TEAM), IPPTE Local 161. Union officials are suggesting that the proposed changes to the pension plan will be detrimental to workers, and it looks as if this issue is about to become a major point of contention in current contract negotiations.
At issue for the approximately 1,100 TEAM members is a proposed switch from a defined benefit (DB) pension plan to a defined contribution plan. DB plans are preferred by unionized and other workers since they provide a guaranteed pension amount when a worker retires. A defined contribution plan means that – even though some of their income is going into a pension – an individual really has no idea what the final amount they’ll be able to withdraw upon retirement will be.
The risk involved, and the reason why a DB plan is preferred, is because it offers security and predictability. The employer also retains responsibility for managing the pension plan, and assumes the risk inherent with it. Defined contribution plans are subject to market volatility and remove liability from the employer and place it on the employee instead.
Most people do not want to be at the complete mercy of the stock market, which is pretty much what happens with defined contribution plans. Catastrophic changes in the market - as with the dot-com bust that affected companies like Nortel - can cause investments to drop sharply, meaning that members can lose a significant portion of their investments almost overnight.
That is why the MGEU is fully supportive of the defined benefit approach to pensions.
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