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.
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.
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.
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.
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.
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.