Air Canada Pilot Retirement Plan

[bafanguy]

Trying to understand what AC pilots have for a retirement plan...just idle curiosity on my part.

I see on APC that those hired before 2012 have a defined benefit (DB) plan. What's that based on...something like final average earnings over the last few years ?

[+TSRA]

I'm not at AC, but I came across this (https://pionairs.ca/wp-content/uploads/2020/09/Pension_Update_2019_EN_Final.pdf). It's a little dated, but given what you're asking for is back in 2012, it should help answer some of your questions.

In a very generalized sense though (not specific to AC), a Defined Benefit (DB) plan is based on a formula that factors salary and time served. It would certainly be helped by your average earnings over the last few years, but then so would most retirement plans. The general idea of a DB plan is that you will be provided a guaranteed income in retirement. The advantage is that the employer takes on all contributing and investment decisions, leaving the employee free to do with their disposable income as they please without worrying (too much) about retirement. The employer invests this money into a fund or series of funds, the goal of which is to grow the money (just like any other retirement plan). The disadvantage is that all monies put into a DB plan are lumped into a single group - for example, pilots. All retired pilots then draw down from that fund. It's not individualized. If the fund runs out of money, all pilots lose. If the company is in dire straits, they often stop contributing to the pension. And, until earlier this year here in Canada, if a company collapsed and there was no language preventing it, creditors could take the pension as a company asset. However, the Federal Government passed a law earlier in 2023 that gave DB pension plan recipients priority over other creditors. To my knowledge, it's not been tested in court yet, but one concern of the new law was the potential for increased costs. I'm no expert in the field though, but that seems to tell me that increased costs could mean the plan doesn't last as long as it might otherwise would have. Although, I'd think we're talking in the timeline of months rather than years.

A Defined Contribution (DC) plan, again not specific to AC, is much more like an RRSP or 401K. The employee and employer put aside a set amount of money into an individualized plan. Like the DB plan, this money is then invested into a fund or series of funds chosen by the employee (not the employer). The advantage here is that the employee has much more control over the risk taken inside the fund and, because it is the employee's plan, should the company ever fail, the money cannot be garnished by creditors. The disadvantage is that there is less overall money for the fund to compound and there is no guarantee of how much you'll be paid out at the end. Also, should the company ever start going downhill, the employer may stop paying its share (I've been lucky to have only been laid off once in four downturns in my career, but in each case, the retirement payments were the first to go and last to come back. Back of the napkin math says they've not paid in for about 1/3 of my career).

I know most pilots would prefer a DB plan because it's mostly fire and forget, but then ask any pilot who retired in the years pre-and-post 9/11 how they thought their retirement would go versus how it is going. Or here in Canada employees of Sears and Nortel when lost a third to half their pensions. Granted that shouldn't happen anymore with the new rules, but I'm in favor of making my own retirement decisions, so I prefer the DC-type plans. But having never worked under a DB plan, I'm sure my opinion might change if I didn't have to set aside a percentage of my disposable income each pay.

[bafanguy]

+TSRA,

Thanks for the detailed response. I'm unfortunately very familiar with a DB plan as I used to have one until the company declared bankruptcy and the plan was terminated and turned over to the Pension Benefit Guarantee Corp (PBGC) from which I now get only beer money. The big flaw in a DB plan is that the money for your retirement is a promise to pay from the pot of gold at the end of the rainbow; it's not money in your name; you don't actually control it. A DC plan appears to solve that flaw. But I'm no expert on the subject.

I don't want to rush into the deep weeds on this. And you sure as heck don't want to hear about it.

Our DB plan paid 60% of the highest 36 months pay in your last 120 months of working (with a 3% penalty for each year of early retirement).

I was just wondering how the AC pilots calculated their DB plan for those hired prior to 2012.

[ahramin]

I'm not at Air Canada but I'm pretty sure their DB plan is based on the highest 5 years.

[yclufk]

Hi,
Does anyone have thoughts on whether Air Canada will eliminate the PR requirement in the future? There are many people who have an open work permit and a valid license.
thanks

[+TSRA]

Hi,
Does anyone have thoughts on whether Air Canada will eliminate the PR requirement in the future? There are many people who have an open work permit and a valid license.
thanks

My thought: no they won't. This is for two reasons.

The first is that even though there is a pilot shortage, there are enough pilots in Canada with a PR card or citizenship who can fill the vacant positions. What will likely happen before they remove their citizenship or landed immigrant status is that they will reduce their fixed-wing flying time from 2,000 hours to 1,500 hours. Once that pool is dried up, they will change their license requirements from an ATPL to a CPL. Once that is dried up, they will lower the experience level to 1,000 hours. By the time this happens though, the next downturn will likely be under way and while they will not likely lay off pilots, they will not be hiring any.

The second, and I would argue the more plausible reason, is that ALPA would attempt to shut any such move down. Allowing Air Canada access to an even wider pool of pilots removes a significant part of the union's negotiating capital and, therefore, would negatively impact future contracts. No union chair would agree to that without major concessions from the company. Now, the counter-argument is that the union has no say over who the company hires. While that is true, most contracts include a line that says the company will exercise its rights under the contract fairly and reasonably. The union could argue that removing a barrier to entry that suddenly allows the company access to a much wider group of pilots, especially while a new contract is being negotiated, would not be negotiating fairly and reasonably as the effect on negotiated pilot wages would be huge and negative. Outside of negotiations, while the union can't do too much about it, such a move would likely sour the relationship between the company and the union, and that's not what either party wants as the next negotiations are always right around the corner.