Plight of Carmakers Could Upset All Pension Plans

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abnormal
Plight of Carmakers Could Upset All Pension Plans

I considered putting [url=this[/url]">http://tinyurl.com/cswdku]this[/url] in the Chrysler thread but, while the failure of Chrysler (and GM) is likely to mean the end of traditional pension plans, the issue extends far beyond those entities.

 

Quote:
Decisions that the government will make soon on the future of General Motors and Chrysler could accelerate the decline of traditional pension plans, which have sheltered generations of workers from an impoverished old age.

Pension experts predict that a government takeover of the two giant plans would spur other auto companies and all types of manufacturers to abandon such benefits for competitive reasons.

For hundreds of thousands of retired auto workers, a federal pension takeover would mean sharply reduced benefits. For the federal agency that insures pensions, it would mean a logistical nightmare in the short term -- and most likely a slow demise eventually as fewer and fewer small plans remain in the system and pay premiums.

So far, the prospect of a grueling grind through bankruptcy court has been a major deterrent to companies that might want to rid themselves of pension obligations. But retirement and labor specialists are watching closely to see whether the administration's auto task force will give either of the auto companies an easier way to shed their huge pension funds, blazing a simplified trail for others to follow.

With or without a bankruptcy filing, the government is quietly making the preparations that would be needed to take over Chrysler's pension plan, with its 255,000 participants, according to government officials.

Even if Chrysler manages to strike a deal to sell many of its assets to Fiat, perhaps in conjunction with a bankruptcy filing, experts doubt Fiat will agree to take on its pension plan without extraordinary assistance. One possibility being considered is a cash infusion of $1 billion from Daimler, which previously owned Chrysler and had agreed to backstop a pension failure for several years.

snip ...

If one or both of these plans collapse, the federal agency that insures pension benefits, the Pension Benefit Guaranty Corporation, will lose a big source of the premium revenue it collects from companies with pension funds. But more important, the demise of the bellwether auto plans might set a template for other companies seeking to cut costs and stay competitive.

"If one of these companies solves its pension problem by shunting it off to the federal government, then for competitive reasons the others have to do the same thing," said Zvi Bodie, a professor of finance at the Boston University School of Management and longtime observer of the government's pension insurance system. "That is the death spiral."

Though the automakers' plans each have a gap between what they have on hand and what they owe their retirees over the years, if they failed, most of that shortfall would be made up by workers in the form of smaller benefits -- not by the companies or the government.

The government estimated that Chrysler's plan was $9.3 billion short as of last November -- but said it would be responsible for only about $2 billion of that. Most of the shortfall would be sliced from workers' benefits. At G.M., the estimated shortfall was $20 billion as of last November, but the government would assume $4 billion of obligations and G.M.'s workers would lose the rest.

snip ...

For years, traditional pensions -- those that shield workers from market risk -- have been in a slow decline, with troubled sectors like aviation and steel shedding their plans in bankruptcy court as new types of individually managed benefits like 401(k) plans have taken hold.

But big sectors, particularly manufacturing and financial services, have clung to the old plans. The Pension Rights Center, a consumer group in Washington, estimates that 18 million Americans are still building up such benefits every year, and millions more retirees are receiving guaranteed payments from their former employers.

"Those that are fortunate enough to have those plans are sleeping soundly," said Karen Ferguson, director of the center.

The loss of the auto pensions would be devastating partly because Detroit sustains many other businesses and partly because of their history. It was the United Automobile Workers union, more than any other force, that pushed Congress to enact laws forcing companies to put money behind their pension promises and creating the federal guarantor. The failure of a major auto workers plan would be a blow to the whole system.

Not only would Ford have reason to opt out of the expense of maintaining a pension plan, but so would Toyota and Honda, which also have pension plans at their American plants, said Teresa Ghilarducci, a professor of economics at the New School for Social Research and former member of the P.B.G.C.'s advisory board.
snip ...

The pension insurance agency, currently operating with an $11 billion deficit, has long viewed the automakers' plans with anxiety, though its officials declined to discuss the situation. G.M.'s plan alone is bigger than the guarantor. The agency has roughly $67 billion in assets to cover the benefits of nearly 4,000 failed pension plans; G.M. has $84 billion in trust just to cover promises to its own workers.

In a failure of that size, the agency's immediate challenge would be logistical, not financial. Its insurance covers a simple benefit, not the much richer pensions negotiated over the years by the U.A.W. It would have to process applications from thousands and thousands of workers, most of whom would get the bad news that they were going to get less than promised.

The government's maximum benefit is $54,000, but coverage falls off rapidly for workers who are younger when their plan fails. For a 62-year-old the maximum is $42,660, and for a 55-year-old, it is only $24,300.

Calculating which workers would bear how much of the losses would be fiendishly complex. The government's rules favor older participants and contain tripwires and arbitrary cutoffs that can leave similar workers with sharply different benefits.

None of this can be sorted out in advance, because the calculations also depend on the amount of money in a pension fund on the day it terminates -- something the pension benefits corporation does not yet know.
snip ...[/quote

 

There's another issue that the article doesn't address. The PBGC is funded by contributions from companies with defined benefit pension plans. As companies drop their plans the premiums required from those companies that remain in the pool will have to increase. At some point that cost simply becomes too much for employers to absorb. 

Unionist

I'll start worrying when Canada starts looking to the U.S. for ideas in social policy and workers' rights.

Tommy_Paine

One of the things the pension plans did for auto workers and the economy in general, was to increase expendable income.  Secure pensions meant that more dollars could be spent instead of being put away in savings.    Consider that the next generation of workers will be earning less, and saving more, there's not as much money to be spent on hockey tickets, dinners out, furniture, clothes, etc.

If anyone thinks they will not be touched by this in some way, they are mistaken.

abnormal

Unionist wrote:
I'll start worrying when Canada starts looking to the U.S. for ideas in social policy and workers' rights.

What percentage of Canadian workers are covered by defined benefit plans?  Is that percentage increasing or decreasing?  If it's decreasing, worry.

Fidel

We'd wish them well in fixing their economy in the US, but they dont have one anymore. Globalization of the neoliberal agenda has turned out to be one large trade war with production seeking to produce by cheap and abused labour offshore. 

abnormal

Which has what to do with the topic?

500_Apples

These plans were designed in an era of higher economic growth, pyramidal rather than inverse-pyramidal demographics, and low life expectancy. It is not at all surprising that these plans would have a hard time when there are more retirees per worker, the economy has shrunk, and people don't die within 5 years of retirement.

More fundamental changes are required than passing the buck.

Tommy_Paine

 

We're currently in contract negotions right now, and the sticking point has been company demands to switch from a defined pension to joint contribution plan for new hires. 

 

 

Jacob Richter

At least Canada has a pension guarantor.

Anyway, I think the larger issue at stake here is the work culture.  I'm sure people over 65 can still work 20 hours or so a week and, on the other hand, the system as a whole can support a shorter workweek for everybody without a loss of pay or benefits.

Unionist

Tommy_Paine wrote:

 

We're currently in contract negotions right now, and the sticking point has been company demands to switch from a defined pension to joint contribution plan for new hires. 

1. Is your current plan contributory or non-contributory?

2. When you say "joint contribution plan" for new hires, I assume you mean that it would not be a defined benefit plan?

3. Don't give in!

 

nussy

What about the retired people like me. I never had a union representing me. I did not have a pension plan I only had the money I put away for retirement. The rrsp are my nest egg. Now my RRIF lost value. Who is watcing out for me?

No one is and I dont expect anyone to. There are no jobs for younger people and many older folks cannot work. We are against paying more taxes....and on the other hand we want more and more from the the Government. I will gladly pay a bit more tax to help the less fortunate.

Boom Boom Boom Boom's picture

I got a letter from my group pension officer yesterday (I can just see Caissa replying that an organised crime mob doesn't have a pension fund!), said our pension funds are holding steady at the momentMoney mouth, but if the recession continues, who knows what could happen.  Frown

Tommy_Paine

Unionist:

1) Non Contributory

2) Yes, it would not be defined.

3)  Well. It's easy to say "Don't give in", and nobody wants to.  We had a 92% show of support for the Union's stance on this issue a two weeks ago, but the plain fact of the matter is that we don't have a lever on the company.  The rest of the aggreement is in place-- and let me tell you it's quite sucktacular-- but in today's economic climate, the guys are impressed by how "good" it is.

Don't give in....

Ya know, if we put all the issues together that face us, it's clear to me we can't deal with them plant by plant, workplace by workplace,  contract to contract.  We've been outflanked by things like "Free" trade and globalization. In this climate, parts supplier plants and other places might even feel lucky to leave a bargaining session with the union intact.

It's frustrating to me-- maybe because I am more forward looking, see a bigger picture or maybe because I'm a looney-- since I see how many groups are being negatively effected not just by the economic meltdown, but also by the "shock doctrine" type money and power grabs by the establishment, typified by the unjustified and socially destructive attack on defined pensions.

The wage and benifit grabs, job loss and layoffs disproportionately affect women, people of colour, youth, and small business.  This is hardly just a CAW fight.

I am beginning to think that leadership on the left is far to bourgeois to address the needs of Canadians.

 

 

500_Apples

Tommy_Paine wrote:

Unionist:

1) Non Contributory

2) Yes, it would not be defined.

3)  Well. It's easy to say "Don't give in", and nobody wants to.  We had a 92% show of support for the Union's stance on this issue a two weeks ago, but the plain fact of the matter is that we don't have a lever on the company.  The rest of the aggreement is in place-- and let me tell you it's quite sucktacular-- but in today's economic climate, the guys are impressed by how "good" it is.

Don't give in....

Ya know, if we put all the issues together that face us, it's clear to me we can't deal with them plant by plant, workplace by workplace,  contract to contract.  We've been outflanked by things like "Free" trade and globalization. In this climate, parts supplier plants and other places might even feel lucky to leave a bargaining session with the union intact.

It's frustrating to me-- maybe because I am more forward looking, see a bigger picture or maybe because I'm a looney-- since I see how many groups are being negatively effected not just by the economic meltdown, but also by the "shock doctrine" type money and power grabs by the establishment, typified by the unjustified and socially destructive attack on defined pensions.

The wage and benifit grabs, job loss and layoffs disproportionately affect women, people of colour, youth, and small business.  This is hardly just a CAW fight.

I am beginning to think that leadership on the left is far to bourgeois to address the needs of Canadians.

 

 

Why do you oppose member-directed plans?

Tommy_Paine

Because it transfers too much risk to workers.  It's a recipe for social upheaval when the stock market periodically collapses, which it will every 40 to 60 years.  It takes too much expendable income out of the hands of people, and off main street, and posits it-- surprise, surprise, in the non value added investment sector.   It takes money from the real economy, and stashes it in bubbles.

 

Doug

I hope nobody's pension plan had shares in GM. Now even the top executives are dumping theirs.

http://business.theglobeandmail.com/servlet/story/RTGAM.20090512.wgmstoc...