Thursday, May 21, 2009

GM, Chrysler retirees facing pension benefits cuts

From the Akron Beacon Journal, via Mish Shedlock:
Den Black, a retired General Motors engineering executive, says he's worried and angry. The government-supported automaker is going bankrupt, he says, and he's sure some of his retirement pay will go down with it.

''This is going to wreck us,'' said Black, 62, speaking of GM retirees. ''These pledges from our companies are now garbage.''

Workers and retirees like Black are bracing for what might be $16 billion in pension losses if the Pension Benefit Guaranty Corp. has to take over the plans, according to the agency.

As many as half of GM's 670,000 pension-plan participants might see their benefits trimmed if that happened, an actuary familiar with the company's retirement programs estimates.

The possibility that GM might dump its pension obligations is likely to intensify debate over the treatment of executives of companies that receive U.S. aid.
GM's pension system had a $20 billion shortfall as of Nov. 30, based on numbers the company provided, said Jeffrey Speicher, a Pension Benefit Guaranty spokesman. By law, the agency would be able to make up only $4 billion of that, he said.

''The rest would be lost,'' Speicher said.
[emphasis added]

Current and future retirees of Chrysler LLC, the other U.S. automaker on life support, would forgo $7.1 billion, Speicher said. Chrysler's plan is underfunded by $9.3 billion, and the agency would cover $2.2 billion, he said.

Chrysler's plan, with 250,000 members, would be the second-largest taken over by the PBGC. The biggest to date was the 120,000-member United Airlines plan, absorbed by the PBGC in 2005. The agency had an $11.2 billion deficit itself as of Dec. 31.

The $16 billion that would be lost by GM workers and retirees is a ''big deal,'' said Frank Todisco, senior pension fellow at the American Academy of Actuaries in Washington. ''That's a significant haircut on one's benefits.''

Article here. As I explained a while back to a commenter on an older post, when the PBGC takes over, those with gold-plated pension benefits will see their benefits reduced to certain statutory maximums. That certainly sucks for those retirees, who no doubt had planned on that level of pension benefits for their retirements. Unfortunately, that's what happens when your company goes belly up, and can no longer meet its pension obligations. Sadly, those retirees may have to readjust their retirement plans to deal with this lower level of pension benefits.

Of course, Obama and Congress may step in to try to protect those retirees in the event those retirement plans get dumped on the PBGC, but where's that money going to come from? From the working taxpayers. Given that the nation is already straining under an enormous Hope and Change budget deficit and public debt load and spending at unsustainable levels, at most such a PBGC bailout only brings the day of reckoning (for us all, including retirees) closer. The financial noose that we have fashioned for ourselves around our necks is tightening.

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