GM's Pension: A Ticking Time Bomb for Taxpayers?
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http://www.time.com/time/business/ar...llnation-yahoo
General Motors Corp. may no longer be the world's biggest automaker, but it still operates the country's largest pension fund. The threat to its pension plans has always been an issue, butit took on a new urgency when GM disclosed April 7 that its plans were underfunded by more than $27 billion, with more than half of that being owed to U.S. workers and retirees. Across town, a post- bankrupt Chrysler faces its own pension shortfall. Moreover, a report last week from the Government Accounting Office (GAO) says the pension crisis in the auto industry could create an unprecedented crisis for the federal Pension Benefit Guarantee Corp., a government-sponsored organization to backstop company pensions.
When the two automakers emerged from bankruptcy reorganization the pension problems were seen as a more distant issue, and presumably one that would be eased by economic growth. But the auto industry is facing a slow recovery, and neither the new GM nor the new Chrysler has produced a profit. Christopher Liddell, GM's new chief financial officer, has stopped short of predicting that GM will be profitable this year, while Chrysler CEO Sergio Marchionne is hoping Chrysler can break even this year. Both GM and Chrysler are also moving to build smaller vehicles, which have traditionally produced smaller profits. The pension funding crisis could begin in 2013, or before either company is fully profitable.
Here are the chief questions raised by the potential pension crisis:
Could taxpayers really be on the hook for UAW pensions?
Yes. GM could face a funding crisis in 2013 or 2014 when, under the current projections, the automaker will be required to make more than $12 billion in contributions to its pension funds to keep them solvent, according to the GAO analysis. Chrysler's estimated future pension obligation is $3 billion. If the companies cannot meet their funding obligations they may have to terminate their plans, and the financial responsibilities (up to government limits) would be assumed by the Pension Benefit Guarantee Corporation. The funding could easily become a serious challenge for the PBGC, which says it is now facing $168 billion in possible plan terminations across a range of companies, many of them auto suppliers. The PBGC is privately funded, but since it was created by an act of Congress and its board of directors consists of the Secretaries of Labor, Commerce and Treasury, it's possible that the U.S. Government would step in if the agency came up desperately short of funds. Of course, the Obama Administration could allow GM or Chrysler to defer their pension contributions, but there would likely be stiff resistance to another wink-and-a-pass for automakers.
Won't a successful IPO of new GM stock resolve the pension funding problem?
No. The actual timing of the initial public offering and the amount of money it raises will depend on market conditions. However, even if an IPO is successful the money would go to the U.S. Treasury to repay it for supporting the company through bankruptcy. In addition to direct aid of $8 billion that GM plans to repay, the government also loaned GM another $49.98 billion in exchange for a 61% stake in the automaker with the understanding the GM would do a public offering of stock as a way for the government to get repaid. The same holds true for Chrysler if and when it gets around to an IPO, which CEO Marchionne has said is unlikely before 2012.
What happens to GM and Chrysler pensioners if the PBGC takes over the funds?
The retirees could face dramatic cuts. The PBGC promises a certain level of benefits, but $35 billion of the two automakers' promised pension benefits fall beyond the PBGC guarantees. In 2010, a single 65-year old retiree is guaranteed a maximum of $54,000 per year under the PBGC guidelines, and many GM retirees have earned benefits in excess of the PBGC limits. Last summer, the PBGC did take over the salaried pension plans belonging to GM's former subsidiary, Delphi Corp. Most of Delphi's 20,000 salaried pensioners, many of whom started out working at GM, saw their pensions cut. Thus, a termination of GM's or Chrysler's pension plans could likely result in pain for both pensioners and taxpayers.
When the two automakers emerged from bankruptcy reorganization the pension problems were seen as a more distant issue, and presumably one that would be eased by economic growth. But the auto industry is facing a slow recovery, and neither the new GM nor the new Chrysler has produced a profit. Christopher Liddell, GM's new chief financial officer, has stopped short of predicting that GM will be profitable this year, while Chrysler CEO Sergio Marchionne is hoping Chrysler can break even this year. Both GM and Chrysler are also moving to build smaller vehicles, which have traditionally produced smaller profits. The pension funding crisis could begin in 2013, or before either company is fully profitable.
Here are the chief questions raised by the potential pension crisis:
Could taxpayers really be on the hook for UAW pensions?
Yes. GM could face a funding crisis in 2013 or 2014 when, under the current projections, the automaker will be required to make more than $12 billion in contributions to its pension funds to keep them solvent, according to the GAO analysis. Chrysler's estimated future pension obligation is $3 billion. If the companies cannot meet their funding obligations they may have to terminate their plans, and the financial responsibilities (up to government limits) would be assumed by the Pension Benefit Guarantee Corporation. The funding could easily become a serious challenge for the PBGC, which says it is now facing $168 billion in possible plan terminations across a range of companies, many of them auto suppliers. The PBGC is privately funded, but since it was created by an act of Congress and its board of directors consists of the Secretaries of Labor, Commerce and Treasury, it's possible that the U.S. Government would step in if the agency came up desperately short of funds. Of course, the Obama Administration could allow GM or Chrysler to defer their pension contributions, but there would likely be stiff resistance to another wink-and-a-pass for automakers.
Won't a successful IPO of new GM stock resolve the pension funding problem?
No. The actual timing of the initial public offering and the amount of money it raises will depend on market conditions. However, even if an IPO is successful the money would go to the U.S. Treasury to repay it for supporting the company through bankruptcy. In addition to direct aid of $8 billion that GM plans to repay, the government also loaned GM another $49.98 billion in exchange for a 61% stake in the automaker with the understanding the GM would do a public offering of stock as a way for the government to get repaid. The same holds true for Chrysler if and when it gets around to an IPO, which CEO Marchionne has said is unlikely before 2012.
What happens to GM and Chrysler pensioners if the PBGC takes over the funds?
The retirees could face dramatic cuts. The PBGC promises a certain level of benefits, but $35 billion of the two automakers' promised pension benefits fall beyond the PBGC guarantees. In 2010, a single 65-year old retiree is guaranteed a maximum of $54,000 per year under the PBGC guidelines, and many GM retirees have earned benefits in excess of the PBGC limits. Last summer, the PBGC did take over the salaried pension plans belonging to GM's former subsidiary, Delphi Corp. Most of Delphi's 20,000 salaried pensioners, many of whom started out working at GM, saw their pensions cut. Thus, a termination of GM's or Chrysler's pension plans could likely result in pain for both pensioners and taxpayers.
#2
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All I can say is, "There are no guarantees in life." I just hope the American taxpayers are not going to be on the hook because a company can't keep it's promises.
I just mailed Uncle Sam some more money today and plan on paying even more next year. My company doesn't offer a pension and that's a choice I've made. Just need to plan accordingly and don't put your eggs in one basket.
I just mailed Uncle Sam some more money today and plan on paying even more next year. My company doesn't offer a pension and that's a choice I've made. Just need to plan accordingly and don't put your eggs in one basket.
#3
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Life bites some times. There is no guarantee in life. Thousands of shareholders got wiped out when Obama took over GM and Chrysler. If you work for a bad company that can't keep ahead of its competition than everybody loses. Hopefully social security will still be there for them, but tough luck on the pension.
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I don't see anything wrong with pensions, as long as one worked a long, successful career and earned them. Yes, I get a good Federal pension (and, of course, the fruits of my own tax-free savings/investments), but I worked 33 years for it, took little vacation or time off, and did lot of work. I served my country for over 30 years, and feel that that is the reward for it.
Same with auto workers. Many of them worked under conditions that led to repetitive-motion injuries from doing the same thing, over and over again, for days, months, and years....sometimes leading to bodily disabilities. Sure, cars are being built in China and other countries where little or no benefits are paid, but does that make it right? Those employees are essentially sacrificing themselves, their health, and their futures for short-term company profits.
Now, of course, things can go the other way too much also. A good example is Germany, where labor, job-security laws, and benefit costs are so high that it has become, in some cases, impractical to build cars there. That is why Audi, for example, switched TT production from Germany to lower-cost Hungary. Even in Hungary, though, they are not paying slave wages/benefits by any means.
Same with auto workers. Many of them worked under conditions that led to repetitive-motion injuries from doing the same thing, over and over again, for days, months, and years....sometimes leading to bodily disabilities. Sure, cars are being built in China and other countries where little or no benefits are paid, but does that make it right? Those employees are essentially sacrificing themselves, their health, and their futures for short-term company profits.
Now, of course, things can go the other way too much also. A good example is Germany, where labor, job-security laws, and benefit costs are so high that it has become, in some cases, impractical to build cars there. That is why Audi, for example, switched TT production from Germany to lower-cost Hungary. Even in Hungary, though, they are not paying slave wages/benefits by any means.
Last edited by mmarshall; 04-16-10 at 09:00 AM.
#6
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I don't see anything wrong with pensions, as long as one worked a long, successful career and earned them. Yes, I get a good Federal pension (and, of course, the fruits of my own tax-free savings/investments), but I worked 33 years for it, took little vacation or time off, and did lot of work. I served my country for over 30 years, and feel that that is the reward for it.
Same with auto workers. Many of them worked under conditions that led to repetitive-motion injuries from doing the same thing, over and over again, for days, months, and years....sometimes leading to bodily disabilities. Sure, cars are being built in China and other countries where little or no benefits are paid, but does that make it right? Those employees are essentially sacrificing themselves, their health, and their futures for short-term company profits.
Now, of course, things can go the other way too much also. A good example is Germany, where labor, job-security laws, and benefit costs are so high that it has become, in some cases, impractical to build cars there. That is why Audi, for example, switched TT production from Germany to lower-cost Hungary. Even in Hungary, though, they are not paying slave wages/benefits by any means.
Same with auto workers. Many of them worked under conditions that led to repetitive-motion injuries from doing the same thing, over and over again, for days, months, and years....sometimes leading to bodily disabilities. Sure, cars are being built in China and other countries where little or no benefits are paid, but does that make it right? Those employees are essentially sacrificing themselves, their health, and their futures for short-term company profits.
Now, of course, things can go the other way too much also. A good example is Germany, where labor, job-security laws, and benefit costs are so high that it has become, in some cases, impractical to build cars there. That is why Audi, for example, switched TT production from Germany to lower-cost Hungary. Even in Hungary, though, they are not paying slave wages/benefits by any means.
This is where people taking responsibility for their own finances is key on top of 401k plans etc. Most good companies will offer a plan with matching + more.
As far as jobs that take a beating, there is the incentive to not do it your entire life. I tried that life when I was real young for a couple hours and said screw this, I am getting an education. My father in-law on the other hand said he didn’t want to go to school and didn’t like it so he wrenched for 40 years and beat his body up, HIS choice and let’s focus on the word choice here, that’s the great part of being in this country. If you don’t like your job you have 50 other states to go seek one or go get an education or learn a new trade……….
Had this discussion several times with my father in-law on this topic, the sad part is he would have been a BRILLIANT engineer, GM wanted him to get his BSME Degree and he just didn’t want to do it, his loss………
Last edited by J.P.; 04-16-10 at 10:08 AM.
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#8
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But as an American tax payer I do not want to fund your retirement, its not like the work you did all those years was for charity, you took home a nice check along with benefits just as the rest of the private sector does. In the private sector pensions can have an enormous drag on a company and where they may have worked 50 years ago; in the new global market it’s too tough to have those legacy costs unless those programs are redesigned and capped.
This is where people taking responsibility for their own finances is key on top of 401k plans etc. Most good companies will offer a plan with matching + more.
As far as jobs that take a beating, there is the incentive to not do it your entire life. I tried that life when I was real young for a couple hours and said screw this, I am getting an education. My father in-law on the other hand said he didn’t want to go to school and didn’t like it so he wrenched for 40 years and beat his body up, HIS choice and let’s focus on the word choice here, that’s the great part of being in this country. If you don’t like your job you have 50 other states to go seek one or go get an education or learn a new trade……….
Had this discussion several times with my father in-law on this topic, the sad part is he would have been a BRILLIANT engineer, GM wanted him to get his BSME Degree and he just didn’t want to do it, his loss………
This is where people taking responsibility for their own finances is key on top of 401k plans etc. Most good companies will offer a plan with matching + more.
As far as jobs that take a beating, there is the incentive to not do it your entire life. I tried that life when I was real young for a couple hours and said screw this, I am getting an education. My father in-law on the other hand said he didn’t want to go to school and didn’t like it so he wrenched for 40 years and beat his body up, HIS choice and let’s focus on the word choice here, that’s the great part of being in this country. If you don’t like your job you have 50 other states to go seek one or go get an education or learn a new trade……….
Had this discussion several times with my father in-law on this topic, the sad part is he would have been a BRILLIANT engineer, GM wanted him to get his BSME Degree and he just didn’t want to do it, his loss………
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#9
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I paid taxes too, just like anyone else....government employees (and managers) are no exception. And I have no problem if a portion of my taxes go to help some autoworkers in their retirement. Many of them worked hard for years, and, IMO, deserve one. In fact, never mind a retirement............many people, today, don't even have a job at all. ![Frown](https://www.clublexus.com/forums/images/smilies/frown.gif)
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How about you just go ahead and cut me a check right now to subsidize my retirement? I am more than happy to send you my address. Or do you feel the rest of us are less worthy of a retirement vs the auto workers at a proven failed company?
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Or do you feel the rest of us are less worthy of a retirement vs the auto workers at a proven failed company?
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The thread topic, of course, dealt with the pension-funding problems GM is going to face.....and ultimately, the Goverment, as one of GM's principal owners. That is ultimately on Obama......he was primarily the one (and, to a lesser extent, Bush) whose idea it was to buy off GM and fire its upper-management. Now let him...and the Treasury Department......sit down and figure out how it is going to be done. My guess (and probably yours as well) is more taxes. That, of course will affect all of us....you and me both. But, even so, GM's pension costs are going to be nothing compared to what the other spending has been in the last 14-15 months.
Last edited by mmarshall; 04-16-10 at 11:57 AM.
#11
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Well, if you have a good job, I assume you are saving and investing on your own. That's partly how I retired myself...not just with a pension.
I think you ALL deserve one...including GM workers. That is not even an issue....so why bring it up? But, since it HAS been brought up, I'll say that I think a lot of companies have placed cost-cutting, today, before the good of their employees.
The thread topic, of course, dealt with the pension-funding problems GM is going to face.....and ultimately, the Goverment, as one of GM's principal owners. That is ultimately on Obama......he was primarily the one (and, to a lesser extent, Bush) whose idea it was to buy off GM and fire its upper-management. Now let him...and the Treasury Department......sit down and figure out how it is going to be done.
I think you ALL deserve one...including GM workers. That is not even an issue....so why bring it up? But, since it HAS been brought up, I'll say that I think a lot of companies have placed cost-cutting, today, before the good of their employees.
The thread topic, of course, dealt with the pension-funding problems GM is going to face.....and ultimately, the Goverment, as one of GM's principal owners. That is ultimately on Obama......he was primarily the one (and, to a lesser extent, Bush) whose idea it was to buy off GM and fire its upper-management. Now let him...and the Treasury Department......sit down and figure out how it is going to be done.
GM can just burn down tomorrow as far as I am concerned. Enough is enough of raping the American public with additional bailout packages. It will be interesting to see exactly how Americans feel at election time.
As painful as it has been with all of the recent scandals, no retirement is guaranteed short of shoving bills into your pillow case.
Last edited by Pearlpower; 04-16-10 at 12:00 PM.
#12
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GM can just burn down tomorrow as far as I am concerned. Enough is enough of raping the American public with additional bailout packages.
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It will be interesting to see exactly how Americans feel at election time.
#13
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I think we are reaching a stage in business where pensions are on the way out the door. Employers and the government included cannot possibly continue paying pensions to their employees. Its too much of a burden on the company and the taxpayers for government employees.
It the GM case, I would be extremely upset if the government honored those pensions. Those employee guarantees was one of the main reasons that the company failed and honestly they should have died with the company.
It the GM case, I would be extremely upset if the government honored those pensions. Those employee guarantees was one of the main reasons that the company failed and honestly they should have died with the company.
#14
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I think we are reaching a stage in business where pensions are on the way out the door. Employers and the government included cannot possibly continue paying pensions to their employees. Its too much of a burden on the company and the taxpayers for government employees.
It the GM case, I would be extremely upset if the government honored those pensions. Those employee guarantees was one of the main reasons that the company failed and honestly they should have died with the company.
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