Delphi Pension Plan Is Called Unfair to Nonunion Workers

Published: June 22, 2011 - New York Times

A Congressional panel is hearing testimony Wednesday that the Obama administration created pension winners and pension losers when it led the bankruptcy restructurings of the auto companies in 2009, despite federal rules meant to weave a uniform safety net for retirees.

“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. Delphi retirees from the United Auto Workers and two other unions, by contrast, got their full benefits, thanks to an unusual side agreement with General Motors, which was honored even as G.M. restructured in bankruptcy that year.

“The United States government chose winners and losers,” Mr. Gump added.

The hearing, by a subcommittee of the House Committee on Oversight and Government Reform, comes at a time of mounting public frustration over pension rules that cushion some retirees, while others see their benefits shredded. The federal government offers limited pension insurance, but workers at some companies — like contractors to the Department of Energy and N.A.S.A. — turn out to have better pension coverage. Meanwhile, states and municipalities have stayed out of the federal 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 General Motors went into Chapter 11 two years ago with financing from the United States Treasury. Officials from the Obama administration’s Auto Task Force asked G.M. executives how they planned to handle the pensions of a second company, Delphi.

Delphi, once a division of G.M., was still a major supplier in 2009, and was bankrupt itself that summer after struggling to avoid liquidation.

“Have you guys begun a dialogue with the U.A.W. over your desire to see the hourly plan terminated?” Matthew A. Feldman, of the Treasury’s Auto Task Force , asked senior G.M. executives in a message referring to a pension plan at Delphi. G.M. had a role because 10 years earlier, when it was spinning off Delphi, it had promised the auto workers’ union that if their pension fund ever went belly-up at Delphi, they could come back to G.M. to be made whole, through special payments called “top-ups.”

The top-ups would cover the difference between the federal government’s limited pension insurance and each retiree’s full benefit. There is no precedent for any company making such payments until G.M. did.

With G.M. itself bankrupt in 2009 and relying on billions of taxpayer dollars to restructure, honoring the 10-year-old promise “could get messy,” Mr. Feldman warned.

He also expressed uncertainty about whether the Pension Benefit Guaranty Corporation would permit it. (Pension-related e-mails between Auto Task Force members and G.M. were provided to The New York Times by a person who requested anonymity.)

The pension guaranty corporation, the federal agency that takes over company pension funds in bankruptcy, is supposed to be self-sustaining, but it usually operates with a deficit, and some predict it will one day need a taxpayer bailout. Its officials are wary of companies offering pensions, then sticking the government with the bills. During Delphi’s bankruptcy the agency had been trying to lay claim to some of Delphi’s profitable offshore subsidiaries to cover its cost in taking over Delphi’s pension obligations, estimated at about $6.2 billion.

If G.M. had enough money in bankruptcy to pay top-ups to Delphi’s U.A.W. retirees, then the pension agency could have demanded that G.M. cover some of its costs.

Walter Borst, G.M.’s treasurer at the time, said in a message back to Mr. Feldman of the Treasury that he did not see how the pension agency could throw such a wrench into G.M.’s restructuring. “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.

He proved correct. Delphi terminated all of its workers’ pension plans, the pension agency’s provided its limited coverage, and G.M. began paying top-ups to Delphi’s retirees from the U.A.W. and two other unions, much to the anger of nonunion retirees like Mr. Gump. They are receiving money only from the pension agency and not G.M.

Many of them are now struggling, Mr. Gump said in his testimony, adding that the nonunion retirees had also lost their health benefits and were in many cases too young for Medicare, yet too old to find new jobs.

The dispute may foreshadow a similar policy decision that Congress must make in the coming months, over whether to appropriate money to N.A.S.A. 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 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 N.A.S.A. fulfills its promise, the company’s retirees will not be subjected to the pension agency’s insurance limits.