General Motors Corp. won’t terminate its hourly pension plan, the United Auto Workers union told its members today — a move that could have cost retirees thousands of dollars in lost benefits.
But the union disclosed that both the Obama administration and GM, during the course of negotiations aimed at restructuring the company, had sought to terminate the company’s underfunded hourly pension plan.
“At various points in the process, the company, the government and other creditor groups argued that the pension plan covering UAW retirees should be terminated,” the UAW said in a fact sheet urging its members to approve a labor concession deal.
The deal means that GM won’t seek to terminate its hourly pension plan, the union said.
GM also wanted to “freeze” its hourly pension plan, which would have prevented current UAW workers from earning additional years of service toward their pensions, the union said. “We successfully fought these efforts to terminate, freeze or otherwise restrict the benefits payable under the pension plan,” the UAW fact sheet said.
In 2007, GM froze its salaried pension plan, saving the company hundreds of millions of dollars.
GM spokeswoman Julie Gibson declined to comment on the UAW fact sheet, saying the company wasn’t discussing the deal until the union’s ratification vote due later this week.
She also declined to say if the company will seek to terminate its salaried or hourly pension plans if GM files for bankruptcy protection.
A person familiar with the matter said he didn’t expect GM to treat its salaried pension plan differently than its hourly plan.
A total of 673,000 people are covered by GM’s pension plans.
If GM terminated its hourly and salaried pension plans, the Pension Benefit Guaranty Corp. would assume $4 billion of the $20 billion that would be unfunded, the agency said.
In January, PBGC said GM’s plans are 20 percent underfunded. GM uses a different set of accounting rules and says its plans were underfunded by $12.7 billion as of Dec. 31.
Younger retirees would be hit hardest. They’d qualify for a much lower maximum pension if their company plan were assumed by the government — $18,900 a year at age 50. Retirees who are 65 can get up to $54,000 a year.
“A pension termination would have been devastating on UAW retirees, since the government’s pension insurance program does not guarantee full benefits,” the UAW fact sheet said. “Early retirees who are receiving the Social Security supplemental benefits would have seen dramatic reductions in their pensions.”
The Obama auto task force has warned that GM’s future pension costs — which include $6 billion payments due in 2013 and 2014 — are “unsustainable” and would require GM to sell 900,000 additional cars each year to meet the obligation.
In an interview last month, the acting head of the PBGC, Vince Snowbarger, said the auto task force has asked questions on “the impact on pensions of various things they have proposed” and the “mechanics of how we might take over a plan, what would happen to participants if we did have to take over the plans.”
“Our purpose is to let them know that there are other consequences to the kinds of decisions that they are making,” he said.
The PGBC was created by Congress in 1974 after the failure of the automaker Studebaker in 1963, which left 11,000 retirees with just 15 cents on the dollar on their pensions.
GM has spent $103 billion on pensions and health care costs over the last 15 years.