United Steel Workers District 6 director Marty Warren thinks half of the $10 million savings A.O. Smith may see from ending manufacturing operations here, should be used to help workers losing their jobs.
On June 3, the Wellington Advertiser received a copy of Warren’s letter directed to A.O. Smith president and CEO Ajita Rajendra.
The letter outlined allegations of the company’s failure to address pension plan issues regarding A.O. Smith’s closure of Canadian water heater operations.
“After more than 100 years of operation, workers will cease making water heaters in Fergus at the end of June and the facility will be used only for distribution of U.S.-made water heaters,” Warren wrote.
He stated that 300 workers, members of USW Local 3789, are losing their jobs and the economic impact is expected to be felt throughout the region.
“The future is bleak for most of these workers. Many are older, having worked most of their lives making water heaters in Fergus,” Warren said. “While terminated workers will receive severance and job search assistance and training, they are in an area of high unemployment with little to no comparable work available.”
Warren claimed longtime workers and 180 retirees “are left with a severely underfunded pension plan.” Because of that, Warren stated older workers of retirement age will find themselves unable to retire.
“A.O. Smith is a large and profitable corporation with sales of nearly $2 billion and profits of $158 million in 2012,” Warren stated.
“The workers in Fergus helped the company achieve that success. We believe you could have made a commitment to Canada and to the long-time workers and retirees in Fergus, but chose not to.”
Warren suggested any savings generated by the closure could have been passed on to workers losing their jobs. He referenced an A.O .Smith quarterly report which suggested closing the Fergus facility would result in “pre-tax annual savings of $10 million in 2014.”
“None of those savings are being passed on to the workers whose loss of livelihood and pensions are allowing you to realize those savings. This makes an already painful situation truly distressing,” Warren stated.
“I urge you to act now to ensure your retirees and soon-to-be terminated employees can retire with dignity and security. I believe this can be achieved by sharing half of the $10-million savings … and contributing that amount to the pension plan.”
David Hammond, A.O. Smith facility general manager in Fergus, said the company and the United Steelworkers reached a closing agreement for manufacturing operations in May.
“Under this agreement, the company will fulfill, and in some cases exceed, all obligations toward employees in compliance with the collective bargaining agreement and government regulations.”
He added that in the 1990 round of collective bargaining, the USW negotiated for and received control of the company’s pension plan. “At the time of transfer to the union this plan was over-funded (a surplus). The USW then took the company’s pension plan and combined it in a multi-employer pension plan, called the Steelworkers Pension Plan.”
Hammond said that since then, A.O. Smith has met all of its employer obligations to make contributions – and always on time and in full.
“In terms of the management of the pension plan, that is an issue solely between the union and its members,” said Hammond. “A.O. Smith has not been involved in management of this pension plan since 1990, at which time, it was over -funded. Any under-funding is the responsibility of the union.”
Hammond added, “We are disappointed that the union has apparently run a deficit on their pension plan and are jeopardizing the retirement of hardworking A.O. Smith employees.”
As to Warren’s estimate of pre-tax savings, Hammond explained there are many factors that make up that calculation.
“These include material cost savings or the material and supplies that we use to manufacture water heaters, the cost of anticipated process improvements that will no longer be necessary and as well as total operating cost including the wage and benefit costs to support operating a smaller facility.”
He stressed, “This business decision was an extremely difficult decision to make and was not taken lightly.”
A.O. Smith president and CEO Ajita Rajendra also responded to Warren’s letter.
Rajendra stated that throughout the process, A.O. Smith has bargained in good faith with the United Steelworkers, as evidenced by the closure agreement for the manufacturing operations which was signed by both parties on May 27, 2013.
Rajendra added the company fulfilled all of its obligations under the terms of the collective agreement, as well as Employment Standards Act, 2000.
He added that steps were taken to ensure employees received additional severance.
“We are also providing $300 per affected employee to be divided between Action Centre support and employee training. I also would like to clarify that A.O. Smith is not ‘closing’ the facility; the office and distribution center will remain in Fergus, employing approximately 125 people, including a number of employees represented by the USW.”
Regarding the pension, Rajendra reiterated the union negotiated for and received control of the company pension plan in 1990, at which time the plan had “a surplus of approximately $3 million.”
He added “once the USW obtained control of the plan, it combined the plan into a multi-employer pension plan called the Steelworks Pension Plan.”
Rajendra stated, “For the last 23 years, A.O. Smith has met all of its employer obligations” to the plan … “without exception.” He added, “In accordance with the terms of the collective agreement, as well as federal statute, A.O. Smith has had no involvement in managing this pension since 1990 and was unaware, until our announcement, of the under-funding issue.”
Rajendra said “all plan management and fiduciary responsibility” lies with the USW and the fund advisors it selected.
“It is especially regrettable that the underfunded Steelworkers Pension Plan jeopardizes the retirement of more than 5,000 hardworking individuals including many A.O. Smith employees,” Rajendra said. “Asking for money from one company to cover the shortfall of a multi-employer pension plan that has been under your management for 23 years is unfair and unreasonable … we are compelled to decline your request …”
Hammond added that in conjunction with government agencies, the company has been holding seminars for employees such as resume writing, interviewing, labour market information and second careers.
He said various programs exist to train older workers to understand their options.
He noted that since the announcement was made regarding the shutdown of the manufacturing operations, about 40 employees have found other employment and given their resignations.
He estimated it worked out to about five people per week.
“People are finding new jobs and moving on. It’s a difficult situation and nobody is really happy about it.”
