Retiree Peter Sapienza of Macomb Township, seen in August, isn't concerned about his GM pension but worries about younger colleagues. (Velvet S. McNeil / The Detroit News)
Washington -- General Motors Corp. and Chrysler LLC retirees and employees could lose $23 billion in pension benefits if the companies terminate their retirement plans in bankruptcy, the government's pension insurance agency warned Tuesday.
Neither GM nor Chrysler plans to file for bankruptcy, but both are taking steps to prepare in case they are forced to do so in the coming weeks. While neither has said it plans to terminate its pension program, struggling steel companies and airlines have used bankruptcy to get out from under large pension obligations and turn them over to the government.
GM and Chrysler combined provide pension benefits to about 630,000 retirees and dependents, and cover another 300,000 who haven't begun drawing benefits.
The Pension Benefit Guaranty Corp. (PBGC) insures the pensions of 44 million Americans, including 1.5 million in Michigan. Its representatives have met repeatedly with the Obama auto task force on the impact of a GM or Chrysler pension plan termination, and have been making preparations for the possibility.
PBGC acting director Vince Snowbarger said Tuesday that termination of either pension plan would have a major impact on retirees.
"The fact is that people are going to see some reductions that obviously they hadn't planned for (if GM or Chrysler terminates its pension plan). They have had a promise made to them that is not being kept and all we can do is try to step in and help out a little bit," he said.
While acknowledging the pain retirees would face, Snowbarger said: "We're going to have the funds to pay these folks for the foreseeable future."
If GM terminates its pension plan, the PBGC would assume $4 billion of the $20 billion that would be unfunded, the agency said.
At Chrysler, it would assume $2 billion of the $9.3 billion shortfall. In January, PBGC said Chrysler's plan is 34 percent underfunded and GM's plan is 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.
Young 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.
GM's salaried retirees are very concerned about how a bankruptcy filing might impact pensions, said Jack Dickinson, president of the General Motors National Retiree Association.
"We're also concerned with hourly (retirees), but they have union representation. We don't," said Dickinson, a retired manager. "We're looking for (PBGC) to say they don't want to touch it at all. If they take the fund over, then we'll all take drastic losses, 50-60 percent losses."
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.
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.
If either GM or Chrysler terminates its pension plan, it would be the largest assumed by the government, in terms of number of employees.
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.
When United Airlines terminated its pension plan in 2005, the PBGC assumed liability of $7.5 billion -- the costliest government pension takeover.
U.S. Rep. Dave Camp, R-Midland, ranking member of the House Ways and Means Committee, wrote to President Barack Obama April 3, asking whether the Treasury Department would push the automakers -- who have received $17.4 billion in government loans -- to abandon their pension plans.
"Will both automakers be forced to terminate their pension plans during bankruptcy?" Camp asked. "What will be the immediate impact of a bankruptcy filing on the monthly pension payments of these retirees and their families?"
In an interview, Camp said the impact of either company terminating its pension plan would be "devastating."
"If the pensions get off-loaded to the PBGC, it will significantly scale back the pensions of thousands of retirees in Michigan and make it difficult for us to recover in Michigan and cause enormous pain to these retirees," he said.
GM retiree Peter Sapienza worries for colleagues who took early retirement, depend on GM to supplement their retirement, do not have Medicare, and are not yet eligible for Social Security.
"If I wasn't 65 yet, I'd be scared," said the Macomb Township resident, who, at 67, has faith that his pension will remain intact.
The White House declined to comment.
GM spokeswoman Renee Rashid-Merem said the company isn't ready to discuss its thinking on its pension plan.
"There is widespread opinion of what might or could happen to pensions in a bankruptcy situation, but at this time, it's premature to comment on any speculative scenario," she said.
GM has spent $103 billion on pensions and health care costs over the last 15 years.
Chrysler spokesman Mike Palese declined comment, other than a brief, written statement.
"The operating rules of the PBGC are public information," he said. "How they would apply in Chrysler's case would depend on a variety of factors that we are not at liberty to discuss at this time."
If the companies file for bankruptcy, they wouldn't necessarily terminate their pension plans. The government could loan the automakers funds to meet their pension obligations.
PBGC has a deficit of $11 billion, but assets of about $60 billion.
It would get the automakers' pension assets if they turn over responsibility to the government -- meaning that the pension agency wouldn't run out of funds in the short term.
GM: Unfunded pension liability: $20 billion; amount covered by PBGC: $4 billion; total covered retirees/dependents: 673,000/485,000
Chrysler: Unfunded pension liability: $9.3 billion; amount covered by PBGC: $2 billion; total covered retirees/dependents: 255,000/144,000