GM Pensions May Be ‘Garbage’ With $16 Billion at Risk

[natrat]

By Holly Rosenkrantz

April 8 (Bloomberg) -- Den Black, a retired General Motors Corp. 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.”

As the biggest U.S. automaker teeters near bankruptcy, workers and retirees like Black are bracing for what may 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 Chief Executive Officer Rick Wagoner, ousted by the Obama administration last month, may receive $20.2 million in pensions, according to a regulatory filing.

“The core issue is fairness,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “To have workers lose a significant amount of their pension after giving a lifetime to building a company is devastating under any circumstance. It’s made all the more worse by the symbolism of a $20 million payoff at the top.”

Issue for Obama

Measured by participants, GM’s pension plan would be the largest taken over by the PBGC, a quasi-government corporation created by Congress in 1974 to protect pension programs of bankrupt companies.

Dealing with pensions may be one of the thorniest issues facing President Barack Obama in a GM bankruptcy. Unions including the United Auto Workers rallied behind his candidacy, spending $52 million to help elect him last year, according to Washington-based OpenSecrets.org, which tracks campaign spending.

In an election-night poll conducted by Peter D. Hart Research Associates, union members identified protecting pensions and Social Security and reducing health-care costs as their top goals for the new administration.

“It’s going to be a very political decision,” said John Casesa, who follows the auto industry as managing partner of Casesa Shapiro Group, a New York consulting firm. “I’m not really sure how this will go.”

$20 Billion Short

GM’s pension system had a $20 billion shortfall as of Nov. 30, 2008, based on numbers the company provided the PBGC, said Jeffrey Speicher, a PBGC 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 in an interview.

GM fell 7 cents, or 3.5 percent, to $1.93 at 4:15 p.m. in New York Stock Exchange composite trading and has dropped 40 percent this year.

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.”

Maximum Amount

The maximum amount that PBGC can pay retirees 65 or older is $54,000 a year. They would lose anything they get over that amount. Beneficiaries under 62 would be likely to lose a supplement of $15,000 to $18,000 paid by the GM plans to bring pensions up to $36,000 annually, according to the actuary with knowledge of the plans, who declined to be identified discussing potential cuts.

GM declined to disclose pension benefits or discuss what might happen to them should it file for bankruptcy.

“We won’t speculate on the matter,” said Renee Rashid- Merem, a spokeswoman for Detroit-based GM, which has received $13.4 billion in U.S. aid and asked for as much as $16.6 billion more.

Obama on March 30 gave GM until June 1 to come up with deeper cuts in debt and labor costs than proposed by Wagoner to avert bankruptcy. He gave Chrysler until May 1 to form an alliance with Italy’s Fiat SpA.

“Our goal, of course, is to do everything realistic to protect workers and their pensions,” said White House spokesman Bill Burton.

Chrysler’s Plans

“We expect Chrysler’s pension plans to be nearly fully funded and have ample liquidity to continue benefit payments as required,” said Michael Palese, a spokesman for the Auburn Hills, Michigan-based company.

Christine Moroski, a United Auto Workers spokeswoman in Detroit, declined to comment.

Black, the former engineering executive, says he worked at GM for 34 years and for two years at Delphi Corp., the bankrupt auto-parts supplier formerly owned by the automaker.

“If GM loses the pensions, it would mean 25 percent of my source of income would evaporate,” said Black, who declined to say what his retirement pay is. “I would have to go back to work.”

Returning to work may not be an option for other GM retirees, Black said. “I’ve talked to lots of folks who would be devastated,” he said.

Not All Companies

Not all companies that go bankrupt dump their pension obligations, said Speicher, the PBGC spokesman. Northwest Airlines Corp. emerged from bankruptcy in 2007 without terminating its plans, he said.

GM’s plan also is in relatively better shape than others, because it’s about 87 percent-funded, according to the actuary, compared with the typical pension plan’s 60 percent to 70 percent funding.

“The question of whether GM’s pension obligations are too great to allow it to operate effectively is a complicated one, and far from obvious,” said Andrew Oringer, an employee- benefits lawyer at White & Case LLP in New York.

“Nobody really knows” what would happen with GM pensions in a bankruptcy, said Jack Dickinson, president of an advocacy group for GM retirees called Over the Hill Car People.

The “PBGC doesn’t want to touch it, they’ve got their own problems,” said Dickinson, 65, who worked for 34 years in sales and management at GM. “We’re just hoping they take a hands-off approach. We depend on that money; we earned it, and it’s part of our compensation.”

To contact the reporter on this story: Holly Rosenkrantz in Washington at [e-mail]

http://www.bloomberg.com/apps/news?pid=20601070&sid=aazS4bEfFmzs&refer=home