“It is frightening to even think about allowing this precedent to stand,” said Bruce Gump, a retiree of Delphi who lost part of his benefit when the federal government took over Delphi’s pension plan in bankruptcy — even though other Delphi retirees got special payments to shield them from such losses.
The difference between Mr. Gump and his luckier neighbors was their union status. Retirees who belonged to the United Automobile Workers and two other unions while at Delphi got their full benefits after the bankruptcy, because of an unusual side agreement with General Motors, which was honored even as G.M. also went into Chapter 11 that year. Retirees like Mr. Gump who were not union members, or who belonged to smaller unions, did not get such help.
Mr. Gump and others who testified argued that this two-tiered outcome had undermined the rule of law in bankruptcy, where retirees with underfunded pensions were normally considered unsecured creditors, whether they belonged to unions or not.
The hearing, by a subcommittee of the House Committee on Oversight and Government Reform, came at a time of mounting public frustration over pension rules that cushion some retirees, while others see their benefits shredded.
The federal government offers pension insurance for workers at companies that go bankrupt, but workers at a few companies — like contractors to the Energy Department and NASA — are turning out to have better pension coverage. Meanwhile, states and municipalities have stayed out of the federal pension program, leaving their workers at the mercy of increasingly hostile taxpayers.
The question of pension guarantees, and who pays for them, came up shortly after G.M. went into Chapter 11 two years ago with financing from the United States Treasury. E-mail messages were introduced to help explain the process.
In the messages, officials from the Obama administration’s Auto Task Force asked G.M. executives how they intended to handle the pensions at Delphi.
Delphi had once been a division of G.M., and was still a major supplier in 2009. Ten years earlier, when it was spinning off Delphi, G.M. promised the autoworkers’ union that if its pension fund ever failed at Delphi, they could come back to G.M. to be made whole, through special payments called “top-ups.”
There was no precedent for any company making such payments.
Matthew Feldman of the Auto Task Force warned G.M. that honoring the 10-year-old promise “could get messy,” and expressed uncertainty about whether the Pension Benefit Guaranty Corporation would permit it.
But Walter Borst, G.M.’s treasurer at the time, replied that the pension agency could not throw such a wrench into G.M.’s plans. “Our reading of the benefit guarantee is clear, that it’s for the benefit of retirees, and not the P.B.G.C.,” he wrote.
Some lawmakers said it appeared that G.M. had been calling the shots, even though it was bankrupt and dependent on federal life support.
Ron Bloom, who testified for the Treasury’s Auto Task Force, said G.M. had complied with all relevant laws while in Chapter 11, adding that he was also troubled by the losses some parties suffered.
The controversy over Delphi’s two-tiered pension outcome may foreshadow a similar policy decision that Congress must make in the coming months, over whether to appropriate money to NASA to cover the cost of a promise it made in 1996, to top up the pensions of its primary space shuttle contractor, United Space Alliance of Houston, if its pension fund was ever terminated. Mr. Obama’s budget proposal for fiscal 2012 asks Congress to appropriate about $550 million for that purpose.
The promise is coming due now because the space shuttle program is ending and United Space Alliance will no longer have the revenue needed to cover the cost of the plan. If NASA fulfills its promise, the company’s retirees will not be subjected to the pension agency’s insurance limits.
Article source: http://feeds.nytimes.com/click.phdo?i=20dc8d5ec1aa99a945d6065ec5400a79