If GM Goes Chapter 11: Retirees' Plight

[REWahoo]

(I'd put this part in the post above but seem to have lost my ability to edit the post. I can edit this post but not that one. Suggestions?)

The software is set up with a six hour edit window. After that, you can't add to (or change) history...

 

[Gearhead Jim]

The software is set up with a six hour edit window. After that, you can't add to (or change) history...

Thanks for the info!

 

[tuixiu]

OT but last year they finally arrested the guys who beat the character Joe Pesci played

That scene was disturbing mainly because of the tighty-whities they had Pesci wearing as he was beating and dumped into the ditch. Couldn't they have allowed him a little dignity in death?

 

[Alan]

Here's an example:
You are 55 years old and retire today with a pension of $4,000/month.
Tomorrow your pension is taken over by the PBGC.
They do their math with all the reductions mentioned in post #11, and your "adjusted" pension is now $1,700/month (a reduction of that magnitude is entirely possible).
Your plan only has enough money to pay you $1,000/month.
The PBGC Guarantee will bring you up to $1,700/month, not to the "Guarantee" level of $2,025/month.

I agree with your interpretation and it is very depressing reading. I intend to RE at 55 next year with all the basic essentials of my RE budget covered by my pension. If the company plan goes down the toilet in the next few years I will lose a LOT of income over the coming years.

But, c'est la vie, I'm certainly not going to change my plans unless it actually happens.

 

[Running_Man]

Employees are not responsible for managing the pension or agreeing to onerous contracts. More important to a company is what happens to a pension fund. The issue is not whether or not the pension was too difficult to fund, they are not, GM had years of great profits, had they continued to fund and conservatively invest to pay their obligations it would never built to this point.

There are rules in place that assure you recognize the proper amount of pension expense each year. However the secondary rules are how much you actually need to fund the plan. By not funding the plan with actual cash, you create a nice little positive cash flow for the company to be used for capital expenditures.

Look at this 2002 GM pension 8K filing, they speak of all the expense GM is going to need for it's pension plan, then down 3 pages state no funding will be required until 2006 and in the year 2000 and 2001 the total amount of pension expense was only 35 and 81 million dollars. For 2001 that worked out to $125 of pension expense per covered worker and or retiree. In 2008 Rick Waggoner was reported to receive a retirement pension worth 20 million dollars.
GENERAL MOTORS CORP - GM Current report filing (8-K) ITEM 9. REGULATION FD DISCLOSURE


As an example of the use to a company's retirement fund can be, in 2008 GM was using the retirement fund to pay the special benefits to get employees to take early retirement. To the tune of $11.7 Billion dollars out of the pension plan, that was already underfunded. I have been looking and unable to find the level of actual funding for year by year.

GM Raids Pension Fund: $11.6b for Buyouts, VEBA | The Truth About Cars

This is typical of what companies do with their pension plans legally, use them as a cash till to reduce headcount and expense but not fund the pension fund unless it allows them to produce a favorable story as GM did in 2003/2004 by issuing 13 billion bonds and depositing in pension trust and booking 200 million in pension profit for the years on that transaction.

Market Place; G.M. Profit Gets Lift From Pension Deal - The New York Times

The idea that company management got railroaded by agreeing to untenable pensions is absurd.

The biggest problem is that when the pension expenses were incurred and 10 percent US government long term bonds were available to fully pay the expense from the 1960's 1970's 1980's and early 1990's. GM did not do so because of all the tricks accountants can do with these numbers by producing a variable and estimated return instead of producing a funded return. Combine this will the ability to use pension money to get employees to leave at high prices with no expense to the company and you have a flawed system where the employer is not held accountable and promises can be used to enrich the management short term with stock options and non-qualifed retirement packages.

 

[clifp]

Great post Running Man. Although, it can be dangerous to inject data into a long running rant.

 

[Zathras]

Running man, that is great information. I actually had never heard this angle before.
What my next question would be is what is the cash flow for retirees pensions and benifits. And, what level of investment growth would allow GM to support those today if they had not been 'raiding' the pension plan.

 

[Running_Man]

Running man, that is great information. I actually had never heard this angle before.
What my next question would be is what is the cash flow for retirees pensions and benifits. And, what level of investment growth would allow GM to support those today if they had not been 'raiding' the pension plan.

Actuaries must every year give that information to GM to support the required pension journal entries for expense the following year required funding and OCI charges. Since the actuaries are making assumptions on what the company will be paying on future salaries with assumed pay raises and industry estimates on expected lengths of service, they tend to require larger reserves in my experience than are actually encountered in the future. I would love to see an accurate summary of these over the last 20 years from GM.

 

[kumquat]

I seem to recall some discussions, somewhere, that suggested that tax rules prohibited 'over-funding' of pensions. IOW, if the pension fund was X% more than actuarily sound, companies were penalized for adding to it.

Anyone know if this is accurate?

 

[Zathras]

I would love to see an accurate summary of these over the last 20 years from GM.

You and me both. That could be incredibly enlightening.

 

[Gearhead Jim]

I agree with your interpretation and it is very depressing reading. I intend to RE at 55 next year with all the basic essentials of my RE budget covered by my pension. If the company plan goes down the toilet in the next few years I will lose a LOT of income over the coming years.

But, c'est la vie, I'm certainly not going to change my plans unless it actually happens.

If you retire at 55 in good health, and your wife is similar age and health, the odds are fairly good that one of you will live to 95 or even longer. That makes the value of a non-COLA pension a lot less that you might expect. Therefore, losing part of the pension is not as significant as you might expect; especially if you have a large DC plan or other investments. Plus you will probably have most of Social Security.

In my own case, I lost 78% of my non-COLA pension but FIRECALC indicates my loss to be about 20% of my annual income throughout a 40 year retirement. We notice the difference, but still have enough to really enjoy retitrement.

 

[Texas Proud]

I will put in my 1cent (because 2cents is too much)....

Running Man... underfunding pension plans has been normal for almost all companies... and I would be upset if I lost my pension that SHOULD have been funded...

But one of the biggest costs (from what I hear on the TV etc.) is the health costs for the retirees... 100% paid health care... and I doubt this was funded at all (or very little)... and this is a benefit that the cost increases has far exceeded inflation...

I was with a company that offered group rate insurance to people who were 55 and retired.... but the CEO that was acquired in a purchase decided that the costs were to much and took them away... they did leave them in place for anybody who was 50 YO... so me being just shy of 49 at the time 'lost' my planned health insurance... am I upset... yea, a bit... do I worry about it... nope... it is the way things happen...

So, to sum up... I would be upset if I lost my pension that is supposed to be funded, but not as upset for losing the health care which was an extra that could be taken away at any time...

 

[FinanceDude]

I seem to recall some discussions, somewhere, that suggested that tax rules prohibited 'over-funding' of pensions. IOW, if the pension fund was X% more than actuarily sound, companies were penalized for adding to it.

Anyone know if this is accurate?

I have not heard of that. However, pension funds were notoriously over-funded in the late 70's and early 80's.......

 

[MasterBlaster]

Originally Posted by kumquat
I seem to recall some discussions, somewhere, that suggested that tax rules prohibited 'over-funding' of pensions. IOW, if the pension fund was X% more than actuarily sound, companies were penalized for adding to it.

Anyone know if this is accurate?

What actually happened was that due to bizzarre accounting rules, pension funds that were "overfunded" could extract money from the plan as profit. Yet the presumed rate of return on the assets was set by the company. So take your pension plan, assume sky high rates of return. and all of a sudden your pension plan was now a profit center for the company regardless of the actual money available to fund pensioners.

Now all of a sudden we find that pension plans are underfunded, and companies will have to pay extra. And they are all crying - Poor me and asking for government leeway now. This is a little AIG story all in itself.

 

[shoe]

MasterBlaster, if that's you pictured in your avatar, I don't think I would dare underfund your pension. You might hit me. Or fall down.

 

[MasterBlaster]

MasterBlaster, if that's you pictured in your avatar, I don't think I would dare underfund your pension. You might hit me. Or fall down.

yeah, Thats me..... now.

I used to be a 98 pound weakling until I discovered the Charles Atlas system. I used to hate getting sand kicked in my face.

 

[HFWR]

Rip tennis balls asunder...

 

[shoe]

yeah, Thats me..... now.

I used to be a 98 pound weakling until I discovered the Charles Atlas system. I used to hate getting sand kicked in my face.

Well that clears things up then!

 

[cardude]

My dealership update

This doesn't pertain to GM retirees, but I've been following the GM bankruptcy watch closely since I close my dealership's doors back in April. I was really sweating whether GM would pay off my floorplan lender the $450K I still owed on the inventory that was left over if they went into bankruptcy. They paid it off a couple of days ago, and I'm still trying to get over the hangover from the party we had after we heard the news.

The really interesting thing is that they actually OVERPAID by about 14K, which really helps since they are being jerks about paying for my parts in left in stock that I legally am supposed to be able to return. My parts are worth about 10K, so now I get to owe THEM money, which I will very slowly pay them like they have been doing to me the last few months. Sweet justice.

The not so good news is Chrysler still owes me 18K for the parts return and various other things they quit paying for months ago, so I'm really not sure if I'll get that money if they go into bankruptcy. I wonder if I need to make another claim for that money when they hit BK? Probably. Joy.

Anyway, that's what's happening on the front lines of the wacky bizaro world of car dealerships today!

 

[DAYDREAMER]

Here I go sidetracking a thread,

Cardude, do dealerships pay for their car inventory when they recieve the cars, or does auto manufacture carry the cost until the car is sold? Who is responsible for carrying the debt?

 

[cardude]

Here I go sidetracking a thread,

Cardude, do dealerships pay for their car inventory when they recieve the cars, or does auto manufacture carry the cost until the car is sold? Who is responsible for carrying the debt?

LOL. You didn't hijack it-- I did.

Dealerships pay for the inventory when it hits the lot (actually about a week before it arrives), so we pay to carry the inventory. All the manufacturer is supposed to do is build a car that will sell, stand behind it, and then leave us alone, but of course they are too smart to do that so instead they get involved in every detail of our business and as a result build crappy cars they have to over incentivize to actually sell.

The existing dealerships are going to have an interesting time IMO trying to get out of this business with GM in BK. Will GM take the inventory back and pay off the floorplan lenders when they are in BK? The dealer contract can be reworked or tossed out, and that's where all the protection is for the dealers concerning termination benefits like buying back inventory and parts and such.

I'm really, really glad I got out when I did, and I almost waited too long.
This is a big train wreck waiting to happen for small towns when all these dealers start to go under en mass, or forced out under the BK process. Very sad.

 

[haha]

So CarDude- GM took back your cars, and paid you what you had originally paid for them? If you note was more or less than this figure, how was that adjusted?

Thanks-

Ha

 

[FinanceDude]

LOL. You didn't hijack it-- I did.

Dealerships pay for the inventory when it hits the lot (actually about a week before it arrives), so we pay to carry the inventory. All the manufacturer is supposed to do is build a car that will sell, stand behind it, and then leave us alone, but of course they are too smart to do that so instead they get involved in every detail of our business and as a result build crappy cars they have to over incentivize to actually sell.

Tell us how you REALLY feel.........

The existing dealerships are going to have an interesting time IMO trying to get out of this business with GM in BK. Will GM take the inventory back and pay off the floorplan lenders when they are in BK? The dealer contract can be reworked or tossed out, and that's where all the protection is for the dealers concerning termination benefits like buying back inventory and parts and such.

Some Olds dealers got out ok, but that was when GM HAD some money to work with..........

I'm really, really glad I got out when I did, and I almost waited too long.
This is a big train wreck waiting to happen for small towns when all these dealers start to go under en mass, or forced out under the BK process. Very sad.

The main thing that will happen is rural folks are going to have to drive 30-50 miles to buy a new GM car, instead of the little dealer down the street.

 

[cardude]

So CarDude- GM took back your cars, and paid you what you had originally paid for them? If you note was more or less than this figure, how was that adjusted?

Thanks-

Ha

We have a strange way of paying for inventory. When we get a car shipped to us from the factory, our floorplan lender pays the factory the full invoice for the car and then puts that amount on my floorplan. However, quarterly the factory pays the dealer a "holdback" amount (3.5% of invoice basically) which was designed to help with cash flow for the dealers I think-- that was before my time when that stuff was decided. The full invoice price that was floored included the holdback amount, however, so basically we have been paid by the factory for the holdback, and plus we have the holdback financed. Pretty stupid actually-- we dealers are financing more than the invoice of the car, but that's how everyone does it.

So you can see that when the factory pays off a dealer's floorplan account, they should only pay off the invoice LESS the holdback amount which has already been paid to us. GM however, in is infinite fiscal wisdom, paid off my entire floorplan amount. Now, when they realize their mistake, they will have to try to get it from me. They owe me for parts and tools in an amount about equal to what the holdback is, so now I have some leverage over these bozos. If they did it the right way I would be left hoping to get my parts and tools and other money they owe me, and since they will probably be in BK that's not a good deal for me.

Chrysler, for instance, did it the right way (for them). They paid off my floorplan lender (Wells Fargo) the invoice less the holdback amount, and now they owe me the 18K in parts and tools and I have to debt to them to offset that amount. Will they pay? I'm not spending that money yet. LOL.

Clear as mud?

 

[cardude]

The main thing that will happen is rural folks are going to have to drive 30-50 miles to buy a new GM car, instead of the little dealer down the street.

I was talking about the loss of employment and tax revenues the dealerships generate. For many small towns, the auto dealers are one of the biggest employers, and they spend thousands a month on local advertising and community support.