Just a little more info.
Summary of Evidence by Dr. Jonathan R. Kesselman
Canadian Human Rights Tribunal
(Thwaites et al./Air Canada and ACPA)
November 6, 2009
I am appending hereto my curriculum vitae and publications record, my study on
mandatory retirement policies in Canada published by the C.D. Howe Institute
(Toronto), and the transcript of my testimony, direct examination, and crossexamination
as expert witness for the Canadian Human Rights Commission in the
2007 hearing of Vilven et al. v. Air Canada et al. I adopt the evidence that I gave at
that time and do not wish to change any part of it.
• What are reasonable expectations about the impact of removing mandatory
retirement at age 60 for Air Canada pilots on the actual ages of retirement?
And how useful are the questionnaire responses gathered from the 68 Air
Canada pilots who were ordered by the CHRT to answer related questions?
o Evidence from other jurisdictions that have abolished mandatory
retirement at age 65 is that the impact on actual retirement is very
small, and in some cases the estimated impact is insignificant. The
average age of retirement for workers even without mandatory
retirement is less than 65 years, typically around age 61. No direct
evidence is available for impacts on the airline pilot occupation.
Moreover, the availability of generous pension plans has been found
to induce earlier retirements than for workers without such pensions,
particularly for those workers who have “maxed out” their pension
benefit entitlements. For those who have not maxed out their pension
benefit entitlements, there may be some inducement to work longer in
order to increase their future monthly entitlements. However, those
workers also face offsetting incentives to retire and start drawing
their pension earlier, particularly where they can find alternative
well‐paying employment to collect both the pension and another
salary, as is the case with many Air Canada pilots.
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o Some indirect albeit limited evidence about potential impacts on the
retirement ages of Air Canada pilots from eliminating the age 60
barrier can be gleaned from actual retirement ages of Air Canada
pilots over a recent four and a half years (2005 to around mid‐2009).
Based on data supplied by Air Canada, over that full period 21% of
pilots (107 out of 515) retired early, that is, prior to attaining age 60.
Over the shorter but more recent period of part‐year‐2009 covered in
the data, 38% of pilots (24 out of 63) retired early. At a minimum, one
can conclude that pilots who retire prior to age 60 under a regime that
enforces retirement at age 60 are unlikely to choose to work longer if
mandatory retirement at age 60 is eliminated. That leaves as open
questions what proportion of pilots now retiring at age 60 would then
choose to work longer and, for those choosing to work longer, exactly
how much longer on average. Evidence that I present later suggests
that the natural incentives of Air Canada’s defined benefit pension
system would impel many pilots not to work much beyond age 60.
o The cited October, 2009, questionnaire was distributed only to those
pilots who were complainants—that is, they had already been forced
to retire at age 60 but expressed a desire to work longer. That group
was a minority of all Air Canada pilots who retired in the previous five
years—only about 12 percent of the total retirees. To survey only
those pilots who had already expressed a desire to work longer is
faulty research design and yields biased results: namely, much higher
estimates of the desired retirement age than if the survey had been
administered to all pilots who had retired from Air Canada. One might
presume that most pilots who retired at age 60 without complaint did
not desire to work beyond that age, but without surveying all retirees
any conclusion would be purely speculative.
• What are the likely impacts of removing mandatory retirement for pilots at
age 60 on Air Canada’s ability to schedule flight crews while respecting the
current preferential bidding system (PBS) and complying with ICAO’s
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“over/under” rule concerning the ages of crew members on international
flights?
o I have examined materials describing the operation of Air Canada’s
PBS, as well as associated factual evidence. I have examined the
“accommodation experiments” by James Tarapasky for Air Canada in
a report dated October 23, 2009, and I conclude that its findings are
unfounded because of several erroneous assumptions:
1. The model assumes that the pilots at the top of the seniority
in each classification will be the ones over age 60, which will
not necessarily be true, given the varying ages at hiring and
other factors affecting promotions.
2. The model assumes that First Officers today will remain First
Officers indefinitely and not get promoted to Captain,
especially as they approach age 60; this assumption is totally
contradicted by observations about the ages of retiring pilots
at retirement events in 2008 and 2009: in Vancouver 87% (of
54) were Captains; in Toronto 96% (of 50) were Captains; and
in Winnipeg 100% (of 6) were Captains; and if they could work
beyond age 60, even the few who had been forced to retire as
First Officers would likely attain Captain rank.
3. Consequently, the percentages of First Officers assumed to
be over age 60 if mandatory retirement age were relaxed is
much too high, with problems in accommodating over‐60‐yearold
First Officers arising in most cases only when 30%, 40%, or
50% of First Officers are assumed to be over 60; these
requisite percentages are far higher than realistic figures.
4. Moreover, these problem cases further require that
unrealistically high proportions of all Captains are also over
age 60, typically 60% or 70% or even higher percentages; this
assumption is contradicted by my earlier evidence on the
impacts on retirement ages, and it is further undermined by
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the natural incentive for pilots to retire when they can do so
without a pension reduction, on which I present evidence later.
5. Even apart from all of the preceding deficiencies in the
model’s factual assumptions, the model’s operation suffers
from a more basic logical error. Namely, its “optimizer”
proceeds in a sequential manner that fails to recognize the
ICAO regulatory constraint that requires at least one of the
First Officers to be under age 60 if the pilot‐in‐command is
over age 60. However, the optimizer has apparently been
programmed in Mr. Tarapasky’s model in a sequential manner
that does not properly reflect the ICAO provision and that
therefore unnecessarily constrains the bid options. It allows
for bidding by Captains in seniority sequence; it then proceeds
to bidding by First Officers in seniority sequence; if the Captain
is over age 60, it is assumed that the operating First Officer
must be under age 60, and pairs that cannot satisfy this
constraint are deemed to be infeasible. What this approach
ignores is that bidding for pairings that involve an augment
First Officer could have an individual under age 60, which
would “save” combinations of ages of the Captain and
operating First Officer that had been rejected as inadmissible
(both over age 60) in the previous stage of the optimization.
Given that First Officers are more likely to be under age 60, by
virtue of their lesser seniority and experience, this logical
deficiency of the optimizer is a serious one. (Note further that
the “over/under” rule applies only to international flights, not
to flights that are solely domestic or that have overflight of US
territory but begin and end in Canada. The international flights
tend to include larger aircraft and longer flight times that
require a larger flight crew including an augment Flight Officer,
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further reducing the incidence of any problems from the
“over/under”rule.)
• What are the predicted impacts on Air Canada’s costs for its pension plan
from removing mandatory retirement at age 60 for its pilots?
o An individual’s retirement response to the removal of mandatory
retirement at age 60 results from a combination of several factors: 1)
the formula for determining pension benefits; 2) his characteristics at
age 60 (years of tenure with Air Canada, average pay for highest‐paid
60 consecutive months, likelihood of attaining a better‐paid position if
he works longer); and 3) differential pay between continuing with Air
Canada versus moving to work with another airline. If most Air
Canada pilots at age 60 have not reached their maximum pension
benefit entitlement (likely in that the current average age at hiring is
34 years, and 35 years of working tenure are needed to reach the
maximum benefit, contingent also on the individual’s highest‐earning
consecutive 60 months), then the individual will have to weigh these
offsetting factors in making a purely financial decision about whether
to retire from Air Canada. By working longer, such a worker accrues a
higher pension entitlement and may increase his pay by bidding on a
higher position; offset against this are the loss of years of receipt of
pension benefits and foregone earnings from retiring with Air Canada
and working for another airline. For the few workers who have
“maxed out” their pension benefit entitlement with Air Canada by age
60, the calculation is simpler: if the annual pension benefit plus the
earnings at an alternative airline exceed his Air Canada salary, retire
from Air Canada and work elsewhere.
o From the standpoint of the Air Canada pension plan, most of these
considerations facing the individual are immaterial, assuming that few
pilots have attained the maximum pension at age 60. The number of
pilot positions at the various ranks (Captain, First Officer, etc.) and
aircraft type is fixed, independent of how long each of the pilots works
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with Air Canada. If some pilots chose to work beyond age 60, the
airline would need correspondingly fewer individuals to employ as
pilots over time, but at any point in time its total salary bill would be
unchanged. However, its total pension costs would be reduced for
two reasons: 1) those pilots retiring at an age beyond 60 would
receive pension benefits for a correspondingly lower number of years
before their death; and 2) over the long run Air Canada would have
fewer pilots retiring in any given year, further reducing total pension
costs. Pilots working beyond age 60 who had not already maxed out
their monthly pension benefit entitlements would increase those
entitlements, which would partially offset but not eliminate the cost
savings to Air Canada’s pension plan. And for pilots who have maxed
out their pension benefit entitlement but still choose to work beyond
age 60 with Air Canada (which they would do if their Air Canada
salary exceeds their Air Canada annual pension benefit entitlement
plus their potential earnings with another airline), then the Air
Canada pension plan reaps an unambiguous saving from the fewer
years that the pension benefits will be paid for those pilots.
• What are the predicted impacts on Air Canada’s costs for training pilots from
removing mandatory retirement at age 60 for its pilots? What about the
impacts on Air Canada’s post‐retirement benefit costs?
o Removing mandatory retirement at age 60 means that, over the
longer run, Air Canada needs fewer distinct individuals for pilots to
cover the same number of pilot positions, because on average each
pilot will work more years. For each pilot who chooses not to retire at
age 60 but to work an additional one year, Air Canada saves on
training costs. The magnitude of these training costs due to
retirements is inflated by the requirement that seniority be
maintained among Air Canada’s workforce. Hence, the savings to Air
Canada from one additional pilot not retiring is about $30,000 on
average for each lower‐seniority pilot needing training upgrading
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multiplied by seven times for the number of levels of job shifting—for
a total of about $200,000. By having fewer individuals as pilots with
somewhat longer average working years, Air Canada’s overall training
costs will be reduced.
o Air Canada provides its retirees with limited post‐retirement benefits
in the form of life insurance and extended health care insurance. For
the same reason that Air Canada will save on training costs if some
pilots work beyond age 60—the need for fewer distinct individuals
working as pilots—the company’s costs for post‐retirement benefits
will also be reduced over time, since those benefit costs are
proportional to the number of retirees.
o One can compute the impact of abolishing mandatory retirement at
age 60 on the total numbers of individual pilots employed by Air
Canada over any given period; this also proportionately affects the
number of retirees on average per year. Assuming that 15 percent of
pilots attaining the age of 60 would choose to work longer, and that on
average each would choose an additional five years, the average
increase in working lives for all pilots would be 0.75 years (0.15 x 5 =
0.75) or 9 months. (These assumptions are fairly conservative given
the responses to the cited October, 2009 questionnaire.) Since the
current average age at hiring by Air Canada is 34 years, this leaves 26
years of working life to age 60. Nine months (0.75 year) divided by 26
years equals 2.9 percent, which is the implied reduction in numbers of
distinct individual pilots required by Air Canada. If one believes that
the impact on average working lives of Air Canada pilots will be
larger, then the implied reduction in numbers of individual pilots will
be correspondingly larger. For example, if average working lives were
to rise by two years, then Air Canada would need 7.7 percent fewer
individual pilots (2 years divided by 26 years). These reductions in
numbers of individual pilots are important, since they proportionately
affect Air Canada’s total costs for training costs, pension payments,
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and post‐retirement benefits. Pension payments and post‐retirement
benefits are proportional to both the numbers retiring and the
number of years remaining in their lifetimes; later average ages of
retirement therefore would further reduce those costs for Air Canada.
• What are the anticipated general impacts on younger pilots at Air Canada
from removing mandatory retirement at age 60 for its pilots? And what
about the impacts on young pilots who are deemed redundant but remain on
the Air Canada list for future hiring?
o Without mandatory retirement, some pilots will choose to work
beyond age 60, and this will influence the speed of promotions for
younger workers. However, this impact will be quite small and will be
offset by the opportunity that younger pilots will themselves have
when they reach age 60 to choose to work longer. I earlier computed
that reasonable figures imply an estimate of about 9 months longer
average working lives for Air Canada pilots, given that many already
choose to retire before age 60, most of the others do not express any
complaints about retiring at age 60, and those wishing to work
beyond age 60 express varying views about how much longer they
would choose to work. The implication is that the promotion times
for younger pilots would on average be delayed by about 9 months.
Similarly, young pilots currently on Air Canada’s list for future hiring
will have to wait an additional 9 months on average until they are
hired. Of course, this delay in promotions and hirings will be offset by
the option to continue working and earning beyond age 60 if the
current mandatory retirement age of 60 is lifted. And since the total
number of individuals required as pilots by Air Canada over the long
run will be diminished, while the total salary bill for all pilots will be
approximated unchanged, on average each pilot’s lifetime total
earnings will be increased.
Yes, short term pain... for long term gain. You may not like it, but it is coming your way soon.