The recent agreement between Ford Motor and the union Unifor, which transfers some members from a defined-contribution pension plan to a defined-benefit plan, could signal a new trend in labor negotiations. Defined-benefit plans provide employees with a guaranteed income for their retirement, while defined-contribution plans depend on employee contributions and market performance. DB plans have historically been collectively bargained and are more common among unionized workers and senior executives. However, the appeal of DB plans has grown as macroeconomic factors have made them more affordable for employers. Higher interest rates have made investing in DB plans more attractive, and a recent report from Mercer shows that the majority of DB pension plans in their client database are estimated to be in a surplus. Labor negotiations have also been favoring workers, as a tight job market gives unions more leverage to negotiate improvements to pension plans and other benefits. However, experts caution that the window for a DB renaissance may not last if interest rates level off and begin to fall.
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