GM Retirees Face an Uncertain Future

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More pressed into early retirement

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.

"weasel words" inserted

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 .

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