Anxiety about GM, Chrysler bankruptcies grips retirees
Limits to pension insurance troubling
BY TIM HIGGINS • FREE PRESS BUSINESS WRITER • April 16, 2009

As the specter of bankruptcy looms large over General Motors Corp. and Chrysler LLC, retirees from the two automakers, especially those younger than 65, fear the rules of their retirement might be abruptly changed, cutting their standard of living and security, after years of promises.

More than 928,000 people are covered under GM and Chrysler pension plans.

"Most of us, obviously, worked for a number of years with the understanding that we would retire with a certain benefit level and had planned our lives around that," said Karen DeOrnellas, a retired GM salaried worker who lives in Alma, Kan., and has joined a newly formed GM Retirees Association. "If that were to change, we would be significantly impacted and it would affect the quality of our lives for the rest of our lives."

If the automakers file for bankruptcy, and if they terminate their pension programs, retirees would get monthly payments under the Pension Benefit Guaranty Corp.'s insurance, but tens of thousands likely would see benefit reductions.

A bankruptcy does not always mean pension programs are terminated, and it's impossible to know how a GM filing would turn out. Northwest Airlines' plan, for example, remained intact as the company reorganized, but United Airlines' pension was taken over by the government.

If GM did terminate its retirement fund in bankruptcy, GM would be, by far, the largest company to do so, with around 650,000 people covered under its plan

"Companies don't just have the option of saying, 'Here, take it.' They're going to have to prove that it is impossible for them to continue in business or reorganize ... and maintain the plans as they have in the past," PBGC acting director Vincent Snowbarger said in an interview. He also said that if the PBGC does take over the automakers' pensions, people who retired before age 65 likely face benefit reductions.

The companies have not said what would happen to the pension programs in a bankruptcy.

However, experts familiar with such proceedings say the retirees have reason for concern.


"If these were handled as conventional bankruptcies, both pension and retiree health benefit plans would be terminated, and the pension put to the" Pension Benefit Guarantee Corp., said Olivia Mitchell, a Wharton School business professor and executive director of the Pension Research Council.


The PBGC, which protects U.S. workers' pensions, typically cuts benefits when it takes over a fund. The agency estimates that GM's U.S. pension obligations are underfunded by $20 billion -- $8 billion more than GM calculates -- and that Chrysler's pensions are underfunded by $9 billion.

John Christie is president of the GM Retirees Association, which started a few weeks ago out of growing concern about the automaker's future.

Christie retired from GM in 2005 at age 56 and is worried about how much of his pension benefit could be wiped out if the company terminates the program.

"I think a lot of folks don't understand the implications of PBGC," he said, "and if they did they would be a whole lot more concerned."

"Pension protection is our No. 1 concern," added Chuck Austin, president of the National Chrysler Retirement Organization.

The level of possible benefit reductions to retirees is unclear.

Using figures released by the PBGC and GM, Frank Todisco, the American Academy of Actuaries' senior pension fellow, roughly estimated that GM retirees could see on average a benefit reduction of 10% to 20%.

"When you start to drill down to the level of the individual, some individuals will have no loss at all, and other individuals will have a loss greater than that number," he said.

The PBGC pays the benefits promised under a terminated plan up to certain limits set by Congress -- $54,000 a year for a single retiree age 65, but much less for people who retired at a younger age.

Contact TIM HIGGINS 313-222-8784 or thiggins@freepress.com