Steel Market Update (SMU) has been following the lockout of the union workers at the U.S. Steel Hamilton plant in Canada. The workers are in the 10th week of the lockout going back to November 7, 2010 when U.S. Steel first locked out the union in a dispute over changes the company wants to make to the defined benefit plan for new hires and they want to remove cost of living adjustments for those already on a pension.

There has been a spirited debate brewing amongst the Local 1005 union members and the outside community. We have written about the union management’s decision not to take the “final offer” on the table from U.S. Steel to the union membership for a vote. The company has the right to request a vote through the Canadian government but, to date, have chosen not to do so.

Brian Hatch, A retired former supervisor from the former Stelco plant which is now called US Steel Hamilton, presented SMU with a letter late last week regarding a number of the issues being debated both within the union and within the retired community from the mill. SMU did a blog post on some of his comments on Sunday evening. We then did a follow up with the union leadership and did a blog post on their opinions on Monday of this week.

One of the two main issues is the changes being demanded by U.S. Steel that new hires not be offered a Defined Benefit pension plan. Mr. Hatch had some comments on the subject which we are sharing below:

Defined Benefit vs. Defined Contribution Pension Plans

There is no question both plans have pros and cons.

Before looking at the differences let’s be clear that the change demanded by US Steel to move from a defined benefit plan to a defined contribution plan is for new employees only. It has zero effect on existing pensioners and existing employees other than it might in the future help to improve the funding of their existing plan. This is because once the plan is closed to new members it never accrues any additional liabilities. This change is the same as agreed to by Lake Erie and the same change made to the salaried plan for new salaried employees at the former Stelco in 1993.

It is a fact that the profit sharing pension plan at the former Dofasco (now ArcelorMittal Dofasco) has in reality always been a form of defined contribution plan and therefore has and always will be fully funded.

Unions in general believe that the defined benefit plans are better because the employee, the plan members are guaranteed a certain amount per month for life regardless of how the markets do. In other words all the risk in the investments is with the employer not the employee. This is very true as long as the plan exists, however try telling the thousands of Nortel employees or closer to home the former Frost Steel workers or any of the other retires who’s pension plans were wound-up that they are better off now that they only get a fraction of their former monthly pension because they were a member of a defined benefit plan. I think most would disagree.

Another feature of defined pension plans is if you leave in the first few years before being vested (locked in) you get nothing. If you leave the company after being vested you will get a deferred pension but only when you are 65 and in most cases this will be very small amount. The result is that most employees after investing 10 or 15 years with a company are locked in and are enslaved to the company and therefore more dependent than ever on the union. Needless to say this is good for the union.

On the other hand the defined contribution plans are fully portable from year one. If you choose or are forced to change employers because of downsizing or bankruptcy, no problem, take your pension monies with you. Defined contribution plans are always 100% fully funded. They are like an individual RRSP in that what is in your account is yours. Most allow some degree of self direction so the members can tailor their investments in their account to best suit their needs. Defined contribution plans give the employee a level of individual freedom to decide on their future that they can never have with a defined benefit plan.

It is a fact that the change from defined benefit plans to defined contribution plans is now the norm not the exception. Unions will continue to fight to keep defined benefit plans because of the control it gives the union over their members. Employers will insist on defined contribution plans because the cost of an always fully funded plan is known with certainty. Most knowledgeable employees want a defined contribution plan because of the freedom it gives them plus they know with certainty that what is in their individual account is theirs come what may.

Defined benefit plan retirees live in fear that their “guaranteed” monthly pension may get reduced significantly if their pension plan is wound-up. Every single Stelco/US Steel retiree has and continues to worry about this possibility!!!

Not a single former Dofasco (ArcelorMittal Dofasco) retiree has ever had to live with this fear. The day they walk out the door they know exactly what they have because of their defined contribution plan. If they choose to buy an annuity they will know with certainty what their monthly income will be for life.

“I know the viewpoints expressed in my letter are controversial. They were intended to be! This letter [former blog post with more to come] is my attempt to get people talking about real facts not political rhetoric, emotional beliefs and half truths.

I think one thing all can agree on is that nobody benefits from a long bitter lockout or strike and this one has the potential to be just that. Everyone will suffer to some extent. The current employees (hourly and salaried), all pensioners, the company, the suppliers and their employees, other business in the city and the city itself. Unfortunately it is often the small innocent people and companies that will be adversely effected the most.

My hope is that the parties involved will look at all of the issues from all sides and then use some creative "out of the box thinking" to resolve the impasses.”

Good Luck All Brian Hatch

SMU Position:

We are aware this is an emotionally charged subject with opinions on all sides. SMU does not belittle the impact the lockout is having both on the workers and their families as well as the greater Hamilton community. Our hope is both sides will find some common ground and will be able to bring the workers back to their jobs as soon as possible. We hope our Blog will provide an outlet and a place where opinions can be expressed.

Mr. Hatch’s comments and opinions are his and do not represent the opinions of Steel Market Update. The same can be said for comments which are made by others to our Blog posts. We are publishing them on our Blog in an effort to keep the steel community aware of the lockout and the issues which are being discussed (and hopefully eventually negotiated) by both sides.

Until then we welcome your comments.

We reserve the right to not publish comments which we deem as offensive, threatening or non-productive to the subject being discussed.

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