Salaried retirees may lose in GM bankruptcy

While GM’s bankruptcy plan includes transferring the pensions and healthcare for all hourly employees and retirees to the new company after restructuring, the plan also calls for steep cuts in benefits for retired salaried workers. A fact sheet for retirees prepared by GM states:

General Motors is working with the U.S. Treasury to reduce some retiree benefit obligations by roughly two-thirds. This reduction will impact salaried retiree life insurance, salaried retiree health care, executive non-qualified pension, executive retiree life insurance and non-UAW hourly life insurance and we are still working on how to accomplish this in the most appropriate way.

A 2/3 reduction in healthcare and pensions for some salaried retirees would be a significant problem for those affected. The General Motors Retirees Association (GMRA) has filed a motion with the bankruptcy court to have a committee appointed to represent the 122,000 salaried retirees from the company. And their attorney says that the law prevents any reduction in benefits without prior negotiation:

Dean Gloster, an attorney with Farella Braun & Martell LLP, which represents the General Motors Retirees Association (GMRA), said that under section 1114 of the U.S. Bankruptcy Code, health and life insurance benefits of retirees cannot be modified in bankruptcy without the participation of the beneficiaries. In this case, he says, GM must negotiate with a court-appointed committee representing the salaried retirees, whether or not they belong to the GMRA. (The association itself has only several thousand members, so it does not represent the retirees.)

This became an issue in the Chrysler bankruptcy as well. And the issue affects more than just these retirees. A reduction in their health benefits may have to be made up by medicaid and medicare, which would add more burden to already cash-strapped programs at a time of declining revenues.

In the Delphi bankruptcy, UAW workers’ pensions and healthcare were protected, while pensions and healthcare for salaried retirees were voided completely.