Thousands of workers could lose their jobs if General Motors and Chrysler are forced into bankruptcy, but retirees of the Detroit automakers stand to lose even more. About 630,000 retirees and dependents – plus another 300,000 who have yet to begin drawing benefits – could lose their pension plans if GM and Chrysler go under, at a total cost of $23 billion.
Both GM and Chrysler are hoping to sidestep bankruptcy, but a Chapter 11 filing could mean the end of company-funded pension plans. According to The Detroit News, several industries – including airlines and steel companies — have used bankruptcy to shed costly pension plans, with the real possibility of GM and Chrysler taking the same route.
If the automakers were to file for Chapter 11, The Pension Benefit Guaranty Corp. (PBGC) – a government agency created after the collapse of Studebaker – would be forced to step in to supply some benefits. However, even under that scenario, retirees and dependents would receive far less than they were promised.
“The fact is that people are going to see some reductions that obviously they hadn’t planned for (if GM or Chrysler terminates its pension plan),” PBGC acting director Vince Snowbarger told The Detroit News. “They have had a promise made to them that is not being kept and all we can do is try to step in and help out a little bit.”
If GM were to eliminate its pension plan under bankruptcy, the PBGC would only be able to provide $4 billion of the $20 billion allotted for retirees. Same story at Chrysler, with PBGC contributing $2 billion of the $9.7 billion promised to former employees. Moreover, the automakers’ youngest retirees would suffer the greatest. Under the PBGC-funded scenario, a 50-year old retiree would only be eligible for up to $18,900 a year whereas a 65-year old retiree could receive as much as $54,000 per year.
It remains possible that the government could step in to fulfill retiree pension plans, but funding would likely still be well below 100 percent.
