To address its growing DB pension deficit, the ailing Canada Post needs to gradually contract out more of its services, according to an e-brief by the C.D. Howe Institute.
Pension shortfalls are one major reason why the Crown corporation is in bad shape. In 2012, its pension deficit ballooned to $5.9 billion—compared with $4.7 billion in 2011, according to figures from The Conference Board of Canada.
Under pension solvency rules, the corporation would have had to come up with an aggregate $2.4 billion in special payments by this year in order to cover the gap. But as a result of a special federal permission, it paid only $63 million in 2011 and $219 million in 2012.
This is not a sustainable strategy for the future, though, says Benjamin Dachis, author of the e-brief, which is called “How Ottawa Can Deliver a Reformed Canada Post.” Instead, first and foremost, “we need to make sure this [deficit] doesn’t get bigger,” he adds.
The way the corporation can do that is by gradually contracting out more of its services while retaining a core Canada Post, so it wouldn’t be responsible for the pension plans of future employees, Dachis explains.
“We can still have the government set the parameters of delivery and pickup, but we can have the competition provide these services,” he says.
Canada Post already contracts out the operation of postal outlets, customer care centres, and air and long distance transportation.
The fact that almost half of Canada Post’s workforce is set to retire by 2021 makes contracting all the more necessary, Dachis says.
Contracting would also improve Canada Post’s services because it “would create a strong incentive for contracted employers and their employees to maximize their productivity” so they can retain their contracts, the report argues.
Additionally, the introduction of contracting arrangements would eliminate the need for big-scale layoffs and alleviate losses stemming from all other areas, such as door-to-door service, rural delivery and declining mail volumes, the e-brief notes.
In 2011, Canada Post’s overall expenses exceeded revenues of about $7.5 billion by $188 million, according Conference Board figures. The corporation has not given its owner, the federal government, a dividend since 2008.
So if Canada Post doesn’t enact reforms, it is expected to see a yearly operating deficit of $1 billion by 2020, according to The Conference Board.