Was politics behind the government's decision to preserve the UAW's pensions?

Saturday, September 18, 2010; A12

IT IS ONE of the enduring puzzles surrounding the bailout of General Motors: Why did retired salaried personnel of a former GM division, Delphi, receive a fraction of their promised pension benefits, while Delphi's retired hourly personnel, members of the United Auto Workers, got 100 percent, paid for in part by the "new" taxpayer-supported GM? For months, this has been a simmering cause celebre on the right, with critics accusing the Obama administration of paying off its union backers -- and echoing white-collar retirees' demand for the same deal the UAW got. Now, at the insistence of Republicans in Congress, Neil M. Barofsky, the special inspector general for taxpayer bailout funds, has pledged to investigate "whether political considerations played a role in favoring hourly over salaried retirees."

The story of GM's relationship with Delphi, which made powertrain, safety and other technologies, is a convoluted one. In short, GM spun off the company in 1999, and it later went bankrupt. As is usual in such situations, the federal Pension Benefit Guaranty Corp. (PBGC) eventually took over Delphi's underfunded pension funds, paying its beneficiaries pennies on the dollar. But the UAW, unlike the salaried employees, had negotiated a prior agreement under which GM agreed to "top off" members' pensions if an independent Delphi ever went bust. Honoring this commitment added $2.1 billion to the GM pension plan's deficit in the fall of 2008, a time when GM, too, was rapidly going down the tubes.

The Obama administration's auto task force decided taxpayers couldn't afford to give Delphi's white-collar workers any more than the reduced benefits to which they were legally entitled. In contrast, the task force concluded that GM's commitment to the UAW was legally binding on a taxpayer-owned post-bankruptcy GM -- just as binding as its other pension obligations, which the task force had agreed to leave untouched. This is plausible, legally. But why did the administration make pension obligations to the UAW sacrosanct in the first place?

We're talking a massive cost burden worth tens of billions of dollars. In theory, the PBGC could have taken it over, putting all UAW pensioners in the same position as Delphi's salaried retirees. To be sure, given the PBGC's precarious finances, this could have imposed a hit on taxpayers as well. But the administration might at least have pressed the UAW to reform its pensions, which are far more generous than those enjoyed by most workers.

Mr. Barofsky should read "Overhaul," the new book by auto task force member Steven Rattner. In Mr. Rattner's account, GM did suggest, quite reasonably, that the UAW accept a pension freeze and switch from defined benefits to an IRA-like plan. UAW officials refused even to discuss it -- and the auto task force went along with the union, because, as Mr. Rattner describes it, "attacking the union's sacred cow . . . could jeopardize the process."

"Trying to break the UAW and crushing [GM and Chrysler's] creditors," he writes, were "steps that we believed unimaginable for the Obama administration." Was this politics or crisis management? Mr. Rattner says the latter. It will be interesting to see whether Mr. Barofsky's review of the evidence leads to a different conclusion.

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