Pension Tension: Bankruptcy and Pensions
Posted by Joellen LeavelleThe recent bankruptcies of Chrysler and General Motors have caused a lot of workers to be concerned about their pensions. While Chrysler has now emerged from bankruptcy GM is still going through the bankruptcy process and the question. “What will happen to my pension?” is very much on the minds of workers and retirees in the automotive sector - and elsewhere.
Are workers right to be concerned? Here’s what we know about the Chrysler and General Motors pension plans.
So far Chrysler and GM employees and retirees can rest assured that their pensions will not be terminated. Thanks to the efforts of the United Auto Workers union and others, both Chrysler and General Motors have pledged to continue sponsoring their pension plans during the bankruptcy process and beyond.
Contrast the actions of Chrysler and GM with those of United Airlines. When United entered bankruptcy, it dumped its pension obligations on the PBGC, the federal agency that insures pensions. It was the largest default by a company in the PBGC’s history, and thousands of pilots, flight attendants, and other workers were hurt in the process. A year later, when the company emerged from bankruptcy, it awarded its CEO and other top-level executives millions of dollars in bonuses and stock options.
Concerned that what happened to United pilots could happen to them, a group of Continental Airlines pilots allegedly faked divorces to try to protect a portion of their pensions that could be lost if their company were to go into bankruptcy. Watch PRC Policy Director Karen Friedman discuss why the pilots might have taken such extreme measures - and why they should have confidence in the PBGC - Â in an appearance on Good Morning America.
Fortunately, Chrysler and GM workers and retirees don’t have to worry about bankruptcy affecting their pensions, at least for now. But what if the two companies don’t recover and the pension plans of these two companies must be terminated?Â
Here’s what all workers and retirees should know about their traditional pensions:
- Pension assets are separate from company assets, so a pension plan’s funding level isn’t necessarily tied to a company’s financial health. A bankrupt company could have a fully-funded pension plan.
- For workers with traditional pensions, the Pension Benefit Guaranty Corporation (PBGC) insures pension benefits up to a certain maximum guaranteed benefit.
- 84 percent of pensioners whose companies have turned their pensions over to the PBGC receive their full pension benefit.
Because traditional pension plans - like those of General Motors and Chrysler - are protected by the PBGC, workers and retirees in these plans will receive up to the PBGC’s maximum guaranteed benefit if their pension plan is terminated. For more information, read a PRC fact sheet on PBGC guarantees. The PBGC has set up a web page to provide information to auto-sector workers and retirees.
There are several groups working on behalf of automotive-sector retirees affected by the Chrysler and General Motors bankruptcies. Below are links to a few of their web sites:
- Delphi Salaried Retiree Association
- GM Retirees Association
- National Chrysler Retirement Organization
- Over the Hill Car People
- United Auto Workers
See our list of organizations that are working to protect retiree benefits at other companies.
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August 6th, 2009 at 1:09 pm
I know that you’re probably accurate when you state that “84 percent of pensioners whose companies have turned their pensions over to the PBGC receive their full pension benefit.” But that does not make me–a Delphi retiree of almost 32 yrs but only 56yrs old–feel very secure. I am facing up to a 70% cut in my current pension and have heard I will possibly only be entitled to around $500 a month. This is because the PBGC implements a certain percentage of reduction in pay for every year a retiree is under the age of 65. Unfortunately, that is how the “penalty” dealt to my pension would put me at poverty level in this country.
I must add that the PBGC did try to force Delphi to have to declare its 6 billion+ dollars oversea profit in its bankruptcy filing before it would agree to take over the Delphi pension plan but was forced by the Auto Task Force to drop this demand to allow the bandruptcy to proceed. Isn’t there ANYBODY out there who can stop this madness? Feeling Used and Abused by Corporate America
August 10th, 2009 at 8:44 pm
To try and keep the Australian arm of GM (Holden) afloat, the government have just offered a $200m line of credit (as well as around $150m, earlier to promote ‘green car’ development). But is this just buying time?
September 13th, 2009 at 5:25 pm
Companies exist to make a profit. Pensions are costs. Costs impact profits. Employees are costs, ditto their impact. Unfortuneatly, companies need employees, but when an employee is no longer needed, dont think for one moment that they will give a hoot about them. Management looks after itself. It is very rare indeed that a companies pension plan has a negative effect on its Management. If it does, this is more than made up for in bonuses and stock options. Remember, that when asked in the 60s, 70s, 80s, 90s etc. whether the public wanted to pay taxes for Healthcare and Pensions, they resoundedly said no, they wanted to protect their freedom of choice. So they chose poor benefits. You cant run a capitalistic society but expect socialist benefits. So, good luck, you chose it. By the by, the workers today are making the same choice, so this issue is going to come back time and again. Also, what happened to all the Flower Children that were going to take care of society. They became todays management, bankers, politicians and have managed to screw society.
October 12th, 2009 at 11:08 pm
Any cut to a pension that you have planned on and budgeted for can be significantly detrimental, particularly when paired with the cuts that are occurring in the retiree medical benefits. The GM retirees are now receiving letters from General Motors informing them that they have requested an exemption from the U.S. Department of Labor from the Income Security Act of 1974, placing their medical benefits, and a perception of pension, in jeopardy. This is a slippery slope. People retire based upon a planned budget, dependent upon a pension they have planned for their entire lives, remaining loyal to an employer because of it, and a budget that included medical benefits. Since there is an Income Security Act of 1974, many of the people of this country in the generation to which I am referring retired on their pensions and benefits with an expectation. If the Department of Labor can circumvent that Act, who is secure?
In the last six months, their medical co-pays have already gone up: $2.50, then $16.00, then $20.00, now $50.00 per prescription. Further, the coverage of necessary medications has been reduced. When on a fixed income, on a planned retirement budget, this can hit hard, made even harder if faced with a reduction in pension.
They deserve more in their retirement years and the automotive retirees are being hung out to dry, while banking industry employees enjoy golden parachutes and bonuses. Who will be their voice? The retirees, who did their jobs, faithfully for decades, should be left alone and able to finish out their retirement years in peace, not in fear and trepidation of loss of ANY portion of their pension or medical benefits that they worked and planned to have.
These changes proposed could impact a very large portion of our nation’s retired community. Department of Labor’s Office of Exemption Determination deadline for public comment and request for hearing is November 2. Put a stop to this approach and process. Close the loophole that is allowing such ease in circumventing the Income Security Act of 1974, otherwise, why is it there. Find a system for Congressional oversight before there is abuse and the Act is nothing but a paper tiger.
January 12th, 2010 at 5:31 am
Are the pensions of state government workers insured under PBGC or any other national program? States cannot file for federal bankruptcy protection, but they do go through waves of self-created funding crisis situations, such as what Colorado’s PERA Board is currently claiming from 2008 investment shortcomings, but which has its real roots in the legislature responding to a TABOR voter initiated amendment to the state constitution by doing an early retirement program for two or three years but not providing any additional funding to pay the extra costs. In all I understand since the Tabor Amendment passed the legislature has shortchanged PERA over $6 billion.
Now among other things they want to reduce the 3.5% fixed annual increase for cost of living changes that workers who retired before early retirement capped at 2% annually, which substantially reduces long term retirement income.
Does the public employer right exist do make retroactive changes, particularly in a state like Colorado where PERA pensions do not supplement Social Security for career employees but take the place of Social Security benefits, just at a higher cost to employees in their contributions than Social Security taxes on employees. I assumed when my wife and I, both retired under PERA under the 3.5% annual adjustment, signed the retirement forms, we exercised a contract.