Auto Retirees Brace for Hardship; Pension Benefits May Suffer in Bankruptcy
Friday, April 24, 2009
As the Obama administration prepares to send Chrysler into bankruptcy court, with General Motors possibly to follow, one of the biggest losers may be the automakers' current and future retirees, a group of nearly 1 million people who could see their pensions and health-care funds slashed by tens of billions of dollars.
The loss could pose political trouble for the Obama administration, which has pressed both automakers since February to ready themselves for bankruptcy as a means of purging their overwhelming debts.
The GM and Chrysler pension plans together cover 928,000 people, and many of them worry that the industry restructuring already underway could slice their benefits.
A group of nonunion retirees is scheduled to meet with the administration's auto task force this morning to try to save their pensions and health benefits. The United Auto Workers is also negotiating over changes to the benefits, but has yet to reach an agreement with the Treasury Department, a source familiar with the matter said.
"We are going to do what we can to help protect their benefits to the degree that we can," said an administration official, who spoke on condition of anonymity because the discussions are private. "It's premature to speculate on what will happen. This is certainly a constituency that we are focused on, but we have not and cannot rule anything out."
With Chrysler facing an end-of-month federal deadline to reach agreements with its bankers and the union, stakeholders have been trading a flurry of offers and counteroffers.
In recent weeks, members of the task force have struggled to devise rescue plans and a legal strategy that might protect those workers if the companies file for bankruptcy. But experts say an outcome is difficult to predict.
"I feel betrayed," said Vicki Prout, 57, a former executive assistant at Chrysler whose 23-year career there included typing speeches for Lee Iacocca when he was chief executive. "They offered these incentives for us to take early retirement, and I took one. Now it looks like my fixed income wasn't so fixed."
She estimated that her monthly payment would be cut in half if the pension is terminated in a bankruptcy. She has started looking for jobs around her home in Troy, Mich., but said there are not many to find.
"I feel like I've been caught in a storm," she said.
If the GM pension plans are terminated, they would be at least $20 billion underfunded, according to the government's Pension Benefit Guaranty Corp. The federal agency would insure about $4 billion of that gap, leaving the GM pension plans with $100 billion in obligations and only $84 billion in assets.
Likewise, if the Chrysler pension plans are terminated, they would be at least $9 billion underfunded, according to the agency, which would insure about $2 billion of that. This would leave the Chrysler pension plans with $28 billion in obligations and only $20 billion of assets, according to the pension agency.