Pension Pains: What if Auto Companies Go Bankrupt?

Insurance may not be enough to cover all benefits, say economists.

ByABC News
April 24, 2009, 6:42 PM

April 27, 2009 — -- If the car companies crash, will your pension crash with them?

That question is being raised on assembly lines around America, in the towns where many auto workers went to retire, and in the halls of Washington. The issue goes far beyond the car companies.

The answer, from economists and others who keep an eye on retirement plans, is that most workers' pensions will be safe -- but... And it's a pretty big "but."

First, warn some economists, there may be a domino effect if Chrysler or General Motors declare bankruptcy. As they reorganize into smaller, leaner companies, they are likely to cut back on the benefits they offer to future employees -- and companies in other industries, under pressure themselves, may do the same.

Second, the struggling economy has been hard on many pension plans. Hammered by the downturn, some of them simply do not have the money at the moment to pay all their projected obligations.

"You have this triple storm," said David Certner, legislative policy director for AARP, the advocacy group that represents people over age 50. "The market is down, interest rates on fixed-income investments are low, and there are tough rules to limit what a pension plan can do to raise more money."

That leaves many workers -- retired or not -- angry.

"A lot of people were greedy," said Larry Croisdale, a retired maintenance supervisor for Delphi, the giant auto parts supplier near Buffalo, N.Y. "They took too much money -- the people at the top -- and they forgot the people at the bottom."

Still, said Croisdale, "I feel better than all those GM employees."

There is no saying yet whether GM or Chrysler actually will declare Chapter 11 bankruptcy. Chrysler's deal with the Canadian Auto Workers union, reached Sunday, leaves pensions untouched. But in the long run, economists say it is inconceivable that the auto companies would be as generous about pensions as they used to be.

Many American auto workers used to assume they could work for 20 years and retire with full benefits. It often has been estimated that the cost of an American-made car is driven up more than $1,500 by the retirement benefits the auto companies pay.