There has been growing evidence that a crisis is looming in North American economies because of the cost to corporations of employee benefits, particlularly pensions and health care.

Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, "Canadians should buy local rather than imported goods, to bolster the pension plans of Canadian companies rather than foreign firms.”

Consider that every new General Motors vehicle you buy these days includes a premium of $1,600 US just to cover pension and health-care benefits for current and former GM workers.

It’s a situation that is affecting employers and employees alike, forcing many of our largest businesses into insolvency, and scaring people from investing.

The bear markets between 2000-02 first turned the spotlight on a number of companies whose pension plans had become vastly underfunded due to their investment losses. And even when the stock markets rebound, an aging population has created the spectre of more retirees drawing benefits out of a company than current employees.

This week, UALCorp., the parent company of United Airlines, convinced a bankruptcy judge to let it transfer four underfunded pension plans to the Pension Benefits Guaranty Corp., a U.S. federal insurance program.

That means that more than $9 billion US in pension liability will have to be absorbed by U.S. taxpayers. And there is fear the move will open the floodgates for other corporations.

The airline industry has become a litter box of companies—including Air Canada — which have entered bankruptcy or scurried for shelter under creditor protection, at least partly due to providing generous pension plans and full medical coverage for many workers.

The auto industry has been dragged down by the same costs, which caused Standard & Poor’s to reduce Ford and GM bonds to junk status earlier this month. Other giants like IBM in the U.S. and Stelco in Canada have been pummelled by pension costs, which in the latter case have scared away investors who don’t want to be on the hook for liabilities built up by former owners.

The result is that even downsizing a company has minimal effect, because benefits have become the gift that keeps on giving, or costing, in the eyes of employers and shareholders.

So how do we get out of this quagmire?

Adrian Mastracci, investment counsel with Vancouver’s KCM Wealth Management, suggests Canadians should buy local rather than imported goods, to bolster the pension plans of Canadian companies rather than foreign firms.

But it’s tough to convince people to buy expensive Canadian goods that weren’t produced by cheaper foreign labour, or to purchase North American autos with poor repair histories just so a Canadian 3,000 miles away can keep getting free root canal work.

Sherry Cooper, chief economist at BMO Nesbitt Burns, wrote earlier this month that our economy—particularly manufacturing — needs to be restructured.

She offered reasons steel companies are struggling to make a profit despite soaring steel prices, and why oil companies are trying to break even despite record revenues.

High costs are hurting heavy energy users, and a strong Canadian dollar is harming manufacturers. She added that the airline industry suffers from “global over-capacity, recalcitrant and entrenched union demands, the lingering effects of 9/11, and the rise in fuel costs.” And the auto industry’s already-declining demand for North American vehicles has been worsened by high gas prices that cut sales of SUVs and minivans.

Some of the problems are the companies’ own fault, the result of generous labour agreements made during good economic times — such as GM agreeing 15 years ago not to close plants or lay off workers without paying stiff penalties.

Wrote Cooper: “Now is the crucial time to restructure and invest in our manufacturing businesses. No doubt, this will be painful, as layoffs and shutdowns are likely inevitable. But there are labour shortages in other sectors, such as health care, education, energy production, most materials sectors, long-haul trucking and tourism.

Amid accelerating global changes, companies and employees alike must adapt, or perish.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.