Posted by: Matthew Goldstein on May 15
It was only a matter of time before some company would ask the federal government for a bailout to help meet its pension funding obligation.
But don’t bank on cash-strapped trucking company YRC Worldwide getting any of the $1 billion in federal pension relief it is seeking. It’s unlikely the federal government will rush in to help any company meet its pension funding obligation because of the obvious precendent that such a move would set. If one company merits pension relief, why shouldn’t others—especially with corporate pension plans underfunded by hundreds of billions of dollars?
Still, you have to give YRC’s management credit for pushing to the front-burner the severe financial problems confronting many pension plans—in particular multi-employer pensions like the ones YRC contributes to.
As I reported in December, multi-employer plans, which cover unionized workers in the manufacturing, automotive and food service industries have been particuarly hard hit by last year’s market rout and the recession. Whenever a company that contributes to a multi-plan goes out of business, the obligation for paying retirement benefits to its workers falls upon the other active companies that remain in the multi-employer plan. Indeed, that’s what YRC’s management says constitutes a big chunk of its annual pension funding costs.
The news that Chrysler and General Motors will eliminate more than 1,800 car dealerships could deal a crippling blow to the Automotive Industries Pension Fund, a California-based multi-employer plan that provides retirement benefits to tens of thousands of auto mechanics. The trustees of the Automotive Industries fund recently reported that the value of the plan’s assets plunged 36% last year to $1 billion. The pension had outstanding liabilities of $2 billion at the beginning of 2008.
The issue of who should pay for the benefits for so-called “orphans,” retirees of defunct companies, is a big issue for multi-employer plans like the ones YRC contributes to and the Automotive Industries plan. And it’s likely to become an even bigger issue in the coming years as the worst recession since the Great Depression drives more manufacturing companies out of business.
The unions have a lot at stake in YRC’s demand for bailout aid. The Teamsters, for instance, are sponsors of the biggest multi-employer plans in the country. So don’t be surprised to find companies like YRC and the Teamsters becoming allies in lobbying Capitol Hill and the Obama administration for some sort of pension relief—even if an outright bailout is unlikely.
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