AFSCME 3357-HOF'S BLOG

IF Bankruptcy
THEN What about the Pension Funds?

I'm getting a lot of calls from autoworkers asking what's going to happen to their pension income. I politely tell them I don't know. The New York Times has an article that sheds some light on the issues. It appears that GM's pension plan was better funded than Chrysler's. Cerberus may have a contingent obligation to cover part of Chrysler's shortfall. It also appears that how much your benefits will be cut (if at all) may depend upon your age. Some of the people interviewed by the NYT are concerned that if GM and Chrysler go bankrupt, defined benefit (traditional) pension plans will soon be as extinct as the dodo bird.

Quoting some highlights of the NYT story:

The government estimated that Chrysler’s plan was $9.3 billion short as of last November — but said it would be responsible for only about $2 billion of that. Most of the shortfall would be sliced from workers’ benefits. At G.M., the estimated shortfall was $20 billion as of last November, but the government would assume $4 billion of obligations and G.M.’s workers would lose the rest.

When Daimler sold a majority stake in Chrysler in 2007 to a private equity firm, Cerberus, it promised to pay $1 billion into the government’s pension insurance program if the pension plan failed within five years. The Treasury could try to persuade Daimler to put some of that money into the plan to avoid a failure.

. . . .

The pension insurance agency, currently operating with an $11 billion deficit, has long viewed the automakers’ plans with anxiety, though its officials declined to discuss the situation. G.M.’s plan alone is bigger than the guarantor. The agency has roughly $67 billion in assets to cover the benefits of nearly 4,000 failed pension plans; G.M. has $84 billion in trust just to cover promises to its own workers.

. . . .

The government’s maximum benefit is $42,660, but coverage falls off rapidly for workers who are younger when their plan fails. For a 55-year-old, the maximum is only $24,300.