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If GM Goes Chapter 11: Retirees' Plight
Old 04-13-2009, 09:32 PM   #1
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If GM Goes Chapter 11: Retirees' Plight

What will be the probable fate of GM retirees if the company goes into Chapter 11? My brother just retired after 38 years: many years with lots of 7 day work weeks and some wear and tear injuries that he never claimed but just worked through. Is there a chance that the retirement won't be fobbed to the federal fund?
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Old 04-13-2009, 11:01 PM   #2
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I don't think it is only going to happen if GM goes through chapter 11.
They are currently trying to restructure without calling it chapter 11.
My guess is, that if they can reach agreements with their bondholders, the UAW, the government (regarding the first 13.4 Billion loan they already have taken) and their dealer network your brother just need to deal with a little less (hopefully not much less).
If GM can't reach agreements with all of those groups in the next 45 days, well, under chapter 11 the common stock holders are the last debtors to get anything. I believe the financing for restructuring (probably from the government) is first, then the suppliers, then bondholders, then common stock holders. I THINK pensions would fall in between suppliers and bondholders.
I would be surprised if he doesn't get some sort of haircut
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Old 04-14-2009, 07:23 AM   #3
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People have lost or taken "haircuts" on pensions for decades. Autoworkers were able to avoid it much longer than most of us, but now it has to happen. Why should autoworkers be protected any more than any other worker, millions have taken this hit before now?

With all due respect, whether you're an autoworker or any other line of work with a pension/retiree health care, if you've thought for all these years that nothing could ever happen to your pension over the course of your life, you have been unconscious. The huge "legacy" costs in domestic cars has been written about over and over. Now there isn't going to be a domestic auto industry unless management, workers, suppliers, dealers, retirees, taxpayers and everyone else with a stake doesn't sacrifice - and IMO none should come out unscathed. And that's why bankruptcy is probably the only solution, every stakeholder expects other stakeholders to take the hit, but not themselves, 'not another nickel, I've given enough.'

It's sad, but everyone knew this day would come and it is what it is...
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Old 04-14-2009, 07:31 AM   #4
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Here is what the U.S. Department of Labor has to say about the topic.

Fact Sheet: Your Employer's Bankruptcy: How Will It Affect Your Employee Benefits?

This section of the Bankruptcy Code applies to potential modification or elimination of retiree health benefits

http://www.law.cornell.edu/uscode/us...4----000-.html
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Old 04-14-2009, 02:33 PM   #5
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Speaking as a person whose pension was "terminated" during the United Airlines bankruptcy, here's what to expect:
If you have a small pension and are older (say 70 yrs old and $1,500/mo pension), you won't lose much.
If you are young with a bigger pension (say 55 yrs old and $5,000/mo pension); bend over because this is going to hurt a lot.
You can also expect other negotiated benefits to be reduced or eliminated: life insurance, health care, etc.
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Old 04-14-2009, 04:24 PM   #6
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When this first started I heard an interview with someone from Pension Guarantee who said that GM pension funds were in fairly good shape and, if they were transferred to the Pension Guarantee, the cash flow would improve. I took that to mean the cash flow would improve until the GM pension funds were depleted.
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Old 04-14-2009, 04:51 PM   #7
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GM retirees almost certainly would lose their health benefits. GM was planning to transfer this liability to the UAW but that hasn't happened yet.
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Old 04-15-2009, 10:26 AM   #8
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It seems from the web site linked that the govt pension insurance dealie doesn't like to make many guarantees about paying anything who's under normal retirement age of 65.
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Old 04-15-2009, 11:04 AM   #9
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When this first started I heard an interview with someone from Pension Guarantee who said that GM pension funds were in fairly good shape and, if they were transferred to the Pension Guarantee, the cash flow would improve. I took that to mean the cash flow would improve until the GM pension funds were depleted.
The math is complex and apparently changes when a plan is terminated. The United pilots' plan was funded about 110% before 9-11, but I am only getting 22% of my original pension. Most people would do better than that, but you get the idea. Fortunately, a big DC plan and a supplemental payout later negotiated by the union took away most of the pain for me, others were not as lucky.
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Old 04-15-2009, 11:14 AM   #10
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From the PBGC website, the amount they guaranty is based on your age when the plan is terminated. For early retirees the amounts that they guaranty is modest. Here is their table:

Maximum monthly guarantee tables (PBGC.gov)
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Old 04-15-2009, 11:27 AM   #11
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From the PBGC website, the amount they guaranty is based on your age when the plan is terminated. For early retirees the amounts that they guaranty is modest. Here is their table:

Maximum monthly guarantee tables (PBGC.gov)
Unfortunately, the final math is more complex than that. Going from memory, you are considered "retired" on the day the plan is terminated, and most plans have early retirement penalties of 3%-8% per year IN ADDITION to the reduced guarantees in the table. Then they calculate what you were entitled to receive based on "retiring" three years previous to that. Using the worst contract you had during that three year period. Etc etc etc. I was forced to retire at 60, but the PBGC says normal retirement age is 65. Oops, a 5 year penalty. Then they go back three more years, oops another 3 year penalty.
Annual earnings above a certain point can't be counted at all in the calculations.
Going back to my original post, people who are younger and had larger pensions will really get screwed, those older with smaller pensions won't get hit nearly as hard.
We used to joke that the mission of the Pension Benefits Guarantee Corporation was to Guarantee that they never had to pay Pension Benefits to anyone.
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Old 04-15-2009, 01:46 PM   #12
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From the PBGC website, the amount they guaranty is based on your age when the plan is terminated. For early retirees the amounts that they guaranty is modest. Here is their table:

Maximum monthly guarantee tables (PBGC.gov)
According to this source, if you started benefits before the plan terminated (or the company declared bankruptcy), you go into the table at your age at plan termination, not the age when you started benefits. This is an important distinction for someone like me who retired at 59 with a benefit modestly above the guaranteed amount. If my former employer's plan makes it a couple more years, my entire benefit will be covered.
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Old 04-16-2009, 09:32 AM   #13
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What ever happens out of this Chapter 11 will be a continuing lesson for what could happen to pensions everywhere. We've already seen what can happen to false promises in the Airline business. Wish DW and I could count on our pension (from a very large aircraft manufacture) and Social Security and our savings, because we theoretically would have more coming in than we made if we were working. We aren't banking on it though. The reality is, all the promises/gimmies are fake. If you want something done right, you have to do it yourself.

I really feel for people who put their faith in a company or a Government system, and then get crapped on.
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Old 04-16-2009, 09:37 AM   #14
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The reality is, all the promises/gimmies are fake. If you want something done right, you have to do it yourself.
I think a lot of folks relying primarily on a 401K for retirement would disagree these days...
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Old 04-16-2009, 09:57 AM   #15
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I really feel for people who put their faith in a company or a Government system, and then get crapped on.
I do too, but have economics or demographics played a role or have they all just been "crapped on?"
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Old 04-16-2009, 10:07 AM   #16
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What ever happens out of this Chapter 11 will be a continuing lesson for what could happen to pensions everywhere. We've already seen what can happen to false promises in the Airline business. Wish DW and I could count on our pension (from a very large aircraft manufacture) and Social Security and our savings, because we theoretically would have more coming in than we made if we were working. We aren't banking on it though. The reality is, all the promises/gimmies are fake. If you want something done right, you have to do it yourself.

I really feel for people who put their faith in a company or a Government system, and then get crapped on.
I think IBM was probably an example of a false promise. auto and airlines where the unions went on strike and demanded high pensions the management had no choice to give in or lose a lot of business.
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Old 04-16-2009, 10:16 AM   #17
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I agree that companies are held hostage from unions sometimes, but pension should never be promised if the companies know they never could honor them.

I hate the hole pension concept. It really is a ponzi scheme. A company has to continue to grow exponentially in order to pay out the false promise to it's retired. At some point, the party comes to an end!

In the end, the individual gets screwed.
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Old 04-16-2009, 10:25 AM   #18
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I agree that companies are held hostage from unions sometimes, but pension should never be promised if the companies know they never could honor them.

I hate the hole pension concept. It really is a ponzi scheme. A company has to continue to grow exponentially in order to pay out the false promise to it's retired. At some point, the party comes to an end!
The bigger problem was the overpromising of benefits, moreso than the pension concept itself. Some (mostly state and local government) pension plans had formulas where you could get 3% per year of service up to a maximum of (say) 90% of final pay after 30+ years of service. This is simply way too much to be sustainable in a "perfect storm" where the market, the economy and demographics are concerned.

In order to make that kind of promise, you have to make optimistic estimates of returns in the pension fund -- optimistic numbers (like 8-9%) which can only be achieved by taking more risk than is acceptable for a pension fund.

If these pension funds used a more sane long-term expectation -- say 5-6% or so -- they wouldn't be in such a mess. But then, that wouldn't allow them to overpromise in terms of benefits or give someone a 90% pension by their early 50s.

I think the feds pretty much got it right with FERS. The defined benefit component is still there, but it doesn't promise the moon and the stars and seems fairly sustainable. And this is truly a "three legged stool" approach to retirement between pension income, TSP and SS. When the pension alone is enough for many retirees to live on, IMO it's probably unsustainably generous.
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Old 04-16-2009, 10:54 AM   #19
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Ziggy nailed it, the problem is unrealistic promises/expectations for timeframe of bennies.

My wife works for muni govt, and they've got women who started as secretaries at a young age that are retiring with a full pension and health benefits in their late 40s. They've been modifying the formula since those days of wine and roses (80 points became 85, absolute minimum age has slowly creeped up to 55, etc.) but the original 80 points for age+service was just an insane qualification for a lifetime of benefits.

Hell even the current formula is too generous since a person starting work at 22 will retire at 55. The "govt workers make less" is certainly something that could be thrown into the discussion but I don't think that's always the case... a lawyer or softer developer makes less but does the lawn maintenance tech and admin assistant? Because of the COLA + pfp administrative assistants who have been there 20 years are usually topped out in their pay scale in the 50k range. Not riches but surely not far less than their non-govt counterparts.
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Old 04-16-2009, 11:40 AM   #20
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the original pension formulas were made up at a time when government workers earned a lot less than private sector workers in the same or similar job. even in the late 1990's when private sector IT salaries boomed, the government salaries were a lot lower. pensions were supposed to make up for it.

what happened was in the last 10 - 15 years public sector salaries grew at a pretty fast rate and are now comparable or higher than a lot of the private sector ones. Usually a lot higher if you include the health benefits
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