By Peter Whoriskey
Washington Post Staff Writer
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.
Those shortfalls in the pension plans would be felt most keenly by the companies' younger retirees, like Prout, many of whom were enticed to take buyouts and now worry that the terms of their buyout deal could be subject to revision.
The end of the pensions would also be a burden to the federal pension agency, which would be charged with administering the programs, according to a Government Accountability Office report released yesterday.
Taking over Chrysler's and GM's pension plans "would likely strain PBGC's resources," the report said, noting that could pressure the federal government into giving the pension agency financial assistance.
In addition to cuts in their pensions, the retirees also face potential reductions in their health benefits. GM owes $20 billion to its union retiree health fund, and Chrysler owes $10 billion to its fund.
In a bankruptcy, at least a portion of those company debts could be extinguished, leaving the retiree health funds with significant shortfalls.
Despite that possibility, members of the auto task force believe that bankruptcy could be the only way to strip the companies of the debt that is weighing them down.
As President Obama moved to aid the auto industry earlier this year, his auto task force ordered GM and Chrysler to reduce the level of their debts and expenses owed to banks, bondholders, retirees and workers.
The companies' first preference is to reduce their debt load by negotiating with all parties. Bankruptcy proceedings, they note, can be difficult to predict and the prospect could stain the brand.
But if the necessary concessions cannot be negotiated, the Obama administration wants the companies to consider a bankruptcy filing, and each company is preparing to do so.
One of the advantages of bankruptcy is that the court proceeding can compel the automakers' creditors -- mainly large banks and other financial firms -- to cut what the automakers owe them by billions of dollars, according to people familiar with the task force's thinking.
In recent weeks, members of the task force have had briefings with the federal pension agency to ask how workers would be treated if the pension benefit is terminated. They've also contacted Daimler, Chrysler's former owner. When Daimler sold Chrysler to the private-equity firm Cerberus in 2007, it agreed to contribute $1 billion to the PBGC if the agency ever had to take over Chrysler's pensions. Daimler might now have to live up to that agreement.
"We spent our whole lives trying to build the company," said Chris Dyrda, 61, a retired engineering manager at Chrysler. "We never thought that in our old age someone else might be playing roulette with our pensions."