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Robert and Joan Allen, 83 and 79 respectively, have what is known in Detroit as a mixed marriage. Both spent their careers with General Motors, but he worked a union job as a shipping clerk in a GM warehousing facility, while she held a salaried position as a senior analyst for the Chevrolet division. Now with GM having filed for bankruptcy, the Allens worry that neither will retain benefits or pension payments adequate to sustain them in their condominium in South Lyon, Mich.
"I don't think my husband's union benefits are safe. Maybe they'll take away all of it, or maybe just dental and eye," says Joan. "And I don't know about our pensions either. You hear this, and you hear that, but you don't know what to believe. I retired from GM in 1985, paying nothing for my benefits. Then they started pecking away at them." The Allens receive a combined monthly pension of $1,900 from GM.
Worrying about the future isn't new to GM's 493,000 retirees and surviving spouses, who have watched the automaker lose market share for years. But with the company's Chapter 11 bankruptcy filing on June 1, retirees have entered a new, uncertain zone. GM's restructuring will affect salaried retiree health care, some executive pensions, and retiree life insurance, the company says. But details are incomplete.
On June 2, GM spokesman Tom Wilkinson acknowledged that there's no solid answer for retirees yet, although GM filed a first-day motion to continue employee benefits, including the pension plan. "But that's not certain until the judge approves the sale of GM," Wilkinson explained. "I believe the assumption everyone has is that those [employee benefits] will be moved to the new company, but there probably will be some reduction in those benefits." He added that those reductions are more likely to involve health-care and life insurance benefits—rather than pension payments—for salaried retirees.
That won't reassure the Allens, who have already seen one change this year. In January, GM revoked all health benefits for salaried retirees older than 65, replacing them with a $300-a-month payment to cover the costs of private-market insurance to supplement Medicare. Joan Allen was paying $138 for the combined medical, dental, and vision insurance GM once promised would be free for life. Now she's on Medicare and has purchased a $192-per-month health insurance policy from AARP to cover what Medicare doesn't; she dropped dental insurance altogether because it stretched her budget too far. Plus, she's had to figure out which specialists are on her new medical plan, and which aren't.
While both salaried and union retirees are likely to face changes, benefits offered to salaried retirees—who are not covered by collective bargaining agreements—appear to be most at risk under the transition. For the moment, pensions appear safe.
"We were assured that GM would move our Salary Retirement Plan—which is the formal name of what we call 'pension'—into the new GM and there will be no disruption," says Jack Dickinson, president of Over the Hill Car People, a Hoover (Ala.) membership organization that looks out for the interests of salaried GM retirees. "It appears that GM has taken the proper steps to protect it. The fund is in excellent shape. And they've indicated it will take care of retirees for years and years to come."
However, according to GM's figures, pensions for hourly workers and salaried employees were both underfunded at the end of 2008, by a total of more than $12 billion.
Dean Gloster, a lawyer hired by the GM Retirees Assn., doubts GM's ability to replenish the pension fund within the next few years. "I'm deeply worried because, while statements from the White House and GM indicate it will be a leaner, meaner company, that is in part because more employees will be pushed into retirement early," says Gloster, a partner in the San Francisco law firm Farella Braun & Martel. "There is the possibility that the business will not be capable of contributing enough to the pension fund. One thing we as baby boomers are poor at is math. We refuse to realize that fewer people are putting money in than are taking it out."
David Certner, AARP's legislative policy director, feels more optimistic about the pension prospects. "GM's pension plan is in relatively good shape, decently funded. Every pension fund in the U.S. is underfunded because of the market's being bad," Certner says.
As a last resort, pensions are somewhat guaranteed by the Pension Benefit Guaranty Corp., a federal outfit. Pensions for retirees 65 and older are guaranteed for up to $54,000 a year. Coverage is lower for younger retirees.
Of more concern is the future of health benefits. The United Auto Workers, which represents nonsalaried employees, will administer health-care benefits through the new Voluntary Employees' Beneficiary Assn. trust that is being established as part of the restructuring. For hourly workers, their union—not their former employer—will determine what health-care benefits they receive. Union retirees are already scheduled to lose vision and dental coverage and will have prescription-drug benefits cut under an agreement reached last month between GM and the union.
For salaried retirees, GM possibly could cancel health benefits for those who are under 65, according to Gloster. "The precedent has been set," he says. "It's a matter of the 'weasel words' contained in 'summary plan descriptions' that employees receive every year. The weasel words give the company the option to 'amend, modify, and terminate' the benefits employees have been promised. Back in the 1970s and 1980s, those weasel words weren't even in the summary plan description booklets. Yet in 1998, the Sixth Circuit Court of Appeals gave GM the right to enforce them."
However the scenarios play out, Kathleen Buczko, the Allens' niece, says she and her husband are preparing for the worst. "We're worried my aunt's white collar pension will disappear now that GM has gone bankrupt, and they won't be able to afford to stay in their home," says Buczko, a Los Angeles consultant who says the Allens acted as parents to her after her own mother and father died. "We're trying to figure out whether we can keep them in their condo in Michigan or move them here to California. So we'll take care of my aunt and uncle, but what about the other retirees who don't have anyone to help them? They're going to be out there, competing with teenagers for jobs to stock the shelves at Wal-Mart (WMT)."
Rebecca Reisner is an editor at BusinessWeek.com .