Pension issues hang over upcoming AbitibiBowater contract talks, says union

By Ross Marowits, The Canadian Press

MONTREAL - AbitibiBowater's unfunded pension liability hangs like a cloud over next week's start of contract negotiations, the union representing thousands of current and former employees said Friday.

The insolvent newspaper giant and the Communications, Energy and Paperworkers Union are set to begin 17 days of scheduled talks early next week.

Wages, job security and even a call for concessions may be up for discussion. But progress is not possible unless the government ensures a solution to the pension challenges that threaten the Montreal-based company and the forestry industry as a whole, said union president Dave Coles.

"We'll begin the tribal dance and try to get into it but there's no way we can get (an agreement) unless there's a resolve to the pension plan," he said in an interview.

The union represents 5,000 current and 13,000 retired AbitibiBowater employees in Ontario, Quebec and Atlantic Canada, whose contract expired last May.

Coles said the union isn't willing to bargain a new collective agreement which may include concessions unless there's a solution to the company's pension insolvency issue. Abitibi's 20 Canadian pension plans are underfunded by $1.3 billion or 25.7 per cent.

"If there's not some sort of government intervention I don't think there's a solution here."

He said the federal government needs to take urgent action to help the company, which is under court protection from creditors.

The union says Ottawa should permit pension regulators to change the rules for such companies and be operating under trust. It says pensions should be calculated on a going concern basis instead of a liquidation basis.

The move would wipe out most of the plan's insolvency and prevent retirees from losing some of their pensions in case of bankruptcy. It would also lessen the company's burden to use precious cash to fund the liability.

The proposal has been cooly received by Finance Minister Jim Flaherty, Coles said.

The Conservative government has promised the introduction of long-term pension reform legislation by the end of the year. Finance Department officials couldn't be reached for comment.

But AbitibiBowater's precarious financial position may not allow it to wait months until the bill becomes law, the union leader said, adding he believes a resolution must be in place by February or March.

NDP Leader Jack Layton this week proposed a national pension insurance program to protect workers whose companies go bankrupt and leave retired employees in the lurch.

The self-sustaining program would be funded by employer contributions and guarantee pensioners $2,500 per month in the event their plan is wound up.

It is among a series of proposals offered after retired employees of the bankrupt telecom giant Nortel held a demonstration on Parliament Hill.

When companies go under they are allowed to wind up their pension plans. There is an estimated $1.8-billion shortfall in the Nortel plan.

AbitibiBowater declined to specifically comment on upcoming negotiations or the union's suggestion that it agrees on a solution to the pension problems.

"It is definitely not a surprise to all parties involved that the pension issue is an important one that we will address and for which we want to find a solution," spokesman Jean-Philippe Cote said in an e-mail.

Last year's attempt at early negotiations failed when the company broke off talks.

Paul Halpern, a professor at University of Toronto's Rotman School of Management, said any changes to the rules have to be carefully considered because it can have tremendous financial implication for the company's other creditors.

He said pensions aren't a riskless proposition and that tax laws don't allow plans to build big cushions.

With several pulp and paper companies facing creditor protection, the pension issue is important for the industry and the thousands of employees it has employed.

"The unfunded liability of the pension plans is the key problem that will bring the industry down," Coles said.

Unless the rules are changed, he said the union is headed for a showdown with Fraser Papers Inc. (TSX: FPS.TO) over its demands for relief from pensioners. The company's pension plans are 40 per cent unfunded.

Many companies at the risk of facing court protection also face pension challenges. Air Canada (TSX: AC-B.TO) last summer obtained temporary relief from the government and employees with a 21-month moratorium on contributions for past service

The airline's pension plans had a solvency deficit of more than $2.8 billion as of Jan 1.