WDET News
- Auto Bankruptcies Could Strain US Pension System
-
May 19, 2009Automotive & Business - Link to Audio
With Chrysler in bankruptcy and General Motors on the verge…the companies’ retirees are anxious about the fate of their pensions. Many analysts think the Federal Pension Benefit Guaranty Corporation will have to take over those plans. But as WDET’s Sarah Cwiek reports…that situation would pose a host of financial and political challenges for retirees…and the government.SOQ
Jack Dickinson retired in 2001 after 34 years as a salaried G-M employee. He’s now the President of Over the Hill Car People…a national G-M retirees association. Dickinson says right now…the group has one major goal when it comes to pensions.
“It would be in the best interests of everyone…the nation…the PBGC…the economy…of course the manufacturers…and above all the retirees to keep this out of the hands of the PBGC.”
The P-B-G-C is the Pension Benefit Guaranty Corporation. It’s a self-funded…government corporation that insures private-sector pension plans in the event of bankruptcy. It’s been described as an FDIC for defined-benefit pension plans. Defined-benefit pensions are the “classic” pensions…guaranteeing retirees a set payment each month. The auto industry…through collective bargaining with the United Auto Workers…pioneered the concept…says Harley Shaiken…a labor analyst at the University of California-Berkeley.
“Their winning these pension plans historically allowed pensions to rise throughout the economy. So many workers who enjoy a pension plan in an industry and a geographic region far from Detroit…have that because of the UAW and the auto industry in previous years.”
But with Chrysler in bankruptcy and G-M likely to follow…those hard-won pension guarantees are in considerable peril. The Pension Benefit Guaranty Corporation says Chrysler’s pensions remain under company control. P-B-G-C Acting Director Vince Snowbarger says the corporation will work with Chrysler to ensure the pension plans’ continuation as the bankruptcy process unfolds. The concern is that the P-B-G-C does NOT insure full pension payments for all retirees. Bob Stevenson is a pension and benefits attorney in Ann Arbor. He says employees who retired at age 65 will generally receive their full pension benefits in the event of a P-B-G-C takeover. But many autoworkers retire BEFORE age 65…and Stevenson says those younger retirees will take a hit.
“Whereas PBGC would insure 4500 a month at age 65…they will only insure 2025 a month if you started your pension as young as 55.”
There are also substantial concerns about the threat autoworkers’ pensions would pose to the Pension Benefit Guaranty Corporation itself. According to a report released last month by the Government Accountability Office…G-M and Chrysler’s pension plans are collectively underfunded by about 29 billion dollars. Bob Stevenson says the P-B-G-C could negotiate to keep the pensions under company control…but:
“They may not ultimately have a choice…depending on how things work out in bankruptcy. And unfortunately…or fortunately depending on one’s viewpoint…PBGC basically is an unsecured creditor in one of these bankruptcies.”
Stevenson says that means the P-B-G-C would have to fight G-M and Chrysler’s other creditors for the companies’ assets. And they may not get much…leaving the P-B-G-C to pick up a massive share of the pension liabilities. The Government Accountability Office says it’s impossible to know what the exact claims to the P-B-G-C would be in that case…but taking over auto pensions would likely strain its long-term solvency. Labor analyst Harley Shaiken says the situation crystallizes how the entire employer-based security net that has defined the post-World War Two era…is at risk.
“To return to that social contract will likely require a stronger role for Washington in the way pensions and health care are funded in the future.”
It’s unclear at this point whether part or all of G-M and Chrysler’s pension plans will be turned over to the P-B-G-C. But if they are…Dickinson…Shaiken…and Stevenson all agree that it could be just the beginning of a highly uncertain period for private-sector retirees…throughout the economy. This is Sarah Cwiek…WDET news.