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    Thread: GM's Pension: A Ticking Time Bomb for Taxpayers?

    1. Member Egz's Avatar
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      04-15-2010 11:49 AM #1
      http://www.time.com/time/busin...yahoo
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      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.

      Looks like they still have some potholes in the road ahead they have to watch out for.

    2. Member compy222's Avatar
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      04-15-2010 11:52 AM #2
      ouch. i certainly don't want to be footing the bill on this.
      as i understand the salaried program is currently 98% funded and in relatively good shape. it's the hourly/UAW pensions that are hardest hit.
      Quote Originally Posted by capsaicin View Post
      AP1 S2000? I can not in good conscience talk you out of that. May your slip angle be great and your bed not be the couch!

    3. Member Big Morgan's Avatar
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      04-15-2010 11:54 AM #3
      I dislike this sort of "reminder" news, believe it or not we debated a lot of this stuff a year ago.
      Anyway the pensioners will take a bigger hit than taxpayers. IIRC the PBGC usually maintains failed pensions to about 30 cents on the dollar (correct me if I'm wrong, but if anything it's probably less).
      The "good news" is that if we hadn't bailed out GM and ChryCo those pension plans would already be in the hands of the PBGC.
      Quote Originally Posted by Anonymous
      Apparently, these “frat-boys” think Craig’s List is more entertaining than Survivor.

    4. 04-15-2010 11:55 AM #4
      Figures, the golden parachutes are well funded but the guys who actually build the cars get screwed.

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      04-15-2010 11:55 AM #5
      And here I thought our government waved a magic wand and fixed GM.


    6. 04-15-2010 12:22 PM #6
      Quote, originally posted by compy222 »
      ouch. i certainly don't want to be footing the bill on this.

      The wonders of our welfare state ensure that you would either way. Whether it will be in the form of pension checks that GM employees were promised over the course of their career or in social services that some thousands of broke retirees will require.
      The question is; which do you think will be cheaper?
      call it potatography

    7. Member axe's Avatar
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      04-15-2010 12:26 PM #7
      The gov't buying GM sure was a good idea, right guise?
      █ ♣ █ + | Sunlight on chrome, the blur of the landscape... every nerve aware

    8. 04-15-2010 12:29 PM #8
      Quote, originally posted by axe »
      The gov't buying GM sure was a good idea, right guise?

      Brilliant commentary. It shows a deep understanding of the topic.

    9. Member Knock Sensor's Avatar
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      04-15-2010 12:30 PM #9
      Quote, originally posted by pacerhimself »
      Brilliant commentary. It shows a deep understanding of the topic.

      You sound like my middle school report card.
      Quote Originally Posted by winstonsmith84 View Post
      It ain't easy being an overweight, uneducated, Sunfire driving whoop whooping clown.

    10. 04-15-2010 12:31 PM #10
      Quote, originally posted by Knock Sensor »
      You sound like my middle school report card.

      That's rough, teachers aren't supposed to be sarcastic in their feedback.

    11. 04-15-2010 12:40 PM #11
      Pretty much everything in the article points to this not having anything to do with the government purchase of GM. You would have to be willfully ignorant to try to tie that into the discussion.
      Will an IPO and sale of the company prevent it from happening? Not necessarily.
      If the government had let GM fail, would it have prevented it from happening? Nope. It would have caused this to happen sooner.

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      04-15-2010 12:56 PM #12
      the cynic in me says the government knew all along they'd be on the hook for the pensions & are just waiting it out until the PBGC takes the funds over & then the payouts can be limited to PBGC maximums.

    13. Member compy222's Avatar
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      04-15-2010 12:59 PM #13
      pbgc varies based on amount of pension owed to you. the smaller the pension, the less you get.
      i know the salaried ones backed about 60-65% depending on the number of years you have in.
      pretty much my whole family, dad, grandpa, 3 uncles, depend on their GM pensions. not one of them spent less than 20 years. my dad had over 38 and my grandpa 45. those are all salaried pensions though, not the UAW fund that is in serious trouble...
      Quote Originally Posted by capsaicin View Post
      AP1 S2000? I can not in good conscience talk you out of that. May your slip angle be great and your bed not be the couch!

    14. Member HaterSlayer's Avatar
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      04-15-2010 01:05 PM #14
      Why is the UAW fund so much more vulnerable than the salaried people?

    15. Member axe's Avatar
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      04-15-2010 01:12 PM #15
      Quote, originally posted by pacerhimself »
      Brilliant commentary. It shows a deep understanding of the topic.

      I would have just posted a funny pic, but I tried to be TCL 2.0 compliant.
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    16. Senior Member Air and water do mix's Avatar
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      04-15-2010 01:35 PM #16
      Quote, originally posted by juice »
      Figures, the golden parachutes are well funded but the guys who actually build the cars get screwed.

      $54,000 is a LOT of money for people not producing. (yes, I know not all of them are making that) It's just that time has caught them. In another 20 years Toyota will have the same problem here, too. No, I have no idea how to fix it without severe cutting to pensions.
      Quote Originally Posted by Boyz in da Park
      Proletariat, Bourgeoise - Everybody smellin' my potpourri...

    17. Swallow Doretti
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      04-15-2010 01:39 PM #17
      I, for one, am not worried. I figure the newly authorized death panels should take care of this mess quite expediently.

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      04-15-2010 02:14 PM #18
      Quote, originally posted by Air and water do mix »
      $54,000 is a LOT of money for people not producing. (yes, I know not all of them are making that) It's just that time has caught them. In another 20 years Toyota will have the same problem here, too. No, I have no idea how to fix it without severe cutting to pensions.

      Our government does exact same thing with politicians. Once you become a Governor/Senator etc you get paid that salary for the rest of your LIFE.

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      04-15-2010 02:16 PM #19
      Quote, originally posted by Air and water do mix »
      $54,000 is a LOT of money for people not producing. (yes, I know not all of them are making that) It's just that time has caught them. In another 20 years Toyota will have the same problem here, too. No, I have no idea how to fix it without severe cutting to pensions.

      That's the thing... given pensions, parachutes, and promotions are typical/normal incentives for market-driven societies... what choice is there?
      The problem isn't pensions as so many fear. The problem is that incentives like that (to acquire 'good' workers - hourly & salary) should have done just that - good workers = good performance = good long term viability.
      GM's history in the last ~1/3rd of its 1st century squandered what should have been. The first decade of its 2nd century was spent trying to make up for the 1st while in denial of the coming fall.
      Unfortunately... the GM story has not and probably will not be the only one in this society, because we never seem to follow any Lessons Learned scheme... rather we favor Lessons Forgotten and Continually Repeated. I've always believed GM's Strengths & Weaknesses to be a mirror image of the society in general.

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      04-15-2010 02:18 PM #20
      Quote, originally posted by Swallow Doretti »
      I, for one, am not worried. I figure the newly authorized death panels should take care of this mess quite expediently.

      Death Panel. That is less cruel a name than I have been using.
      I never knew GM had the largest pension responsibility. I knew there were a lot of retirees, but daaaaaamn.

    21. 04-15-2010 02:19 PM #21
      New healthcare means all those pensioners will live longer, so figure on it being more expensive than projected.

    22. 04-15-2010 02:19 PM #22
      Quote, originally posted by VdubChaos »
      Our government does exact same thing with politicians. Once you become a Governor/Senator etc you get paid that salary for the rest of your LIFE.

      And just think -- those politicians weren't "producing" even when they were originally employed.
      call it potatography

    23. Swallow Doretti
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      04-15-2010 02:22 PM #23
      Quote, originally posted by uncleho »
      I never knew GM had the largest pension responsibility. I knew there were a lot of retirees, but daaaaaamn.

      And we can't add to it, uncleho. When it comes time to retire, they're just going to take you out back behind the factory and shoot you, then tell all your coworkers you went to live "off on a farm" somewhere.

    24. Member sdpauly's Avatar
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      04-15-2010 02:35 PM #24
      I wonder how much of the pension money was invested in MBS and other real-estate derivatives...
      The problem wasnt the pension obligations themselves, it's the fact that the trust fund money was invested poorly and not adequately managed by GM. Pensions (and things like Social Security) are not entirely bad if the money isn't squandered on present expenses and nothing put away for the future like they should have.
      "Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats." -H. L. Mencken

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      04-15-2010 02:58 PM #25
      Pensions are a thing of the past nowadays; you are not going to find as many companies now that are willing to pay a portion of your salary for years after you retire.
      But again, I hate GM. This is nobody's fault but GM's. And they know it.
      To think that the taxpayer should absorb this shortfall is nothing short of ridiculous.

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