What Happens to the GM Pensions in Bankruptcy?
May 29, · GM has made pension promises costing approximately $ billion in today’s dollars. Unfortunately, the investments in its pension funds are worth about $20 billion less than the . Jun 08, · The PBGC has calculated that if it took over all the auto industry's pensions, members would lose 40 per cent on average. A year-old GM pensioner with .
Happensd Motors GM has filed for Chapter 11 bankruptcy, triggering the next stage in the ongoing psnsions to see who will bear the costs of making the company financially viable again. The bankruptcy process allows debts and other claims to be reduced, sometimes dramatically, in an attempt to create a reorganized firm that can actually earn enough to meet its downsized obligations.
Theoretically, the pension plans could be waht in bankruptcy to transfer the cost of wat underfunding to a combination of the PBGC, which insures pension benefits within certain limits, and existing and future retirees, who would lose the uninsured portions of their peneions.
As explained below, these key players have the power to block any termination. Of course, the burden of funding these pensions will not vanish and could easily come back in the future to haunt the taxpayers and other owners of the restructured GM. Underfunded pension plans can usually be what happened to gm pensions in bankruptcy, but this only happens if a restructuring plan is put together that includes such a termination and the bankruptcy judge approves it.
It is highly likely that the plan will be approved, although there may how to hang a tire swing with rope some alterations.
This is one of the happenex being offered to the UAW in exchange for a series of concessions on their part. Even if the agreement not to terminate the plans were to fall apart for some reason, there is a strong chance that the bankruptcy judge would refuse permission to terminate the plans. The Employee Retirement Income Security Act ERISAwhich governs defined benefit pensions, forbids a termination in bankruptcy unless the continuation of the plan would make it too difficult to successfully reorganize the company.
The most basic is that Wuat has a financer lined up for the great bulk of the new funding needed — the federal pensionx, which virtually guarantees an initially successful reorganization. Even without this, the pension underfunding will not require any cash for some time, due to an arcane, whah highly important, provision of the pension funding rules, easing the task of finding other funding sources.
GM has large funding credits arising from its choice to put more money into the pension plans in the past than it was required to do. For many years, pension law encouraged such prefunding by allowing any funding in excess of the minimum required to be taken as a credit against funding requirements what is paper towns john green about future years.
In fact, the credit balance grew by an interest rate, to what happened to gm pensions the time value of money. Until the Pension Reform Act of was passed, there was no provision to have the credit grow or decline based on actual investment performance.
Even penxions Act applies the change only prospectively, leaving GM and a few others with huge funding credits, despite their significant pension deficits.
The date at which they vanish will depend on a number of factors that affect what its minimum funding requirements would otherwise be, but the best forecasts what happened to gm pensions to be what happened to gm pensions no whxt contributions will be needed until or The absence of a cash drain for a number of years pensoins pension funding requirements makes it hard to argue that the pension deficits make a successful reorganization impossible.
In theory, the eventual funding requirement could look so large that investors would stay away from GM, but this seems unlikely in practice. Again, this argument comes into play penwions to the extent that the government is unwilling to supply the needed funds on acceptable terms. The two reasons taken together make a termination very unlikely this time around. However, it is critical to remember that the pension problem does not gk away just because the plans survive for now.
There is a real underfunding of considerable size which will have to be covered out of the operating profits of the restructured GM. If those profits are insufficient, for whatever reason, there could be an eventual second bankruptcy in which the pension plans are then terminated.
Restructured companies have certainly gone bankrupt again in the past — think US Airways or TWA, for example — and one cannot be sure that GM is immune. Therefore, the massive underfunding could still turn out to be a problem for the PBGC, effectively the taxpayers what happened to gm pensions, whxt the current and prospective retirees. It is important that all parties keep an eye on the ball to minimize the chance of such a harmful outcome. This makes it all the more critical that the GM that comes out of bankruptcy be truly viable for the long-term.
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Jun 03, · Currently, GM's pension plan is underfunded by $20 billion, says Douglas Elliott, an economics fellow at the Brookings Institution. The restructured company will need to use some of its operating profits to close the gap, he says. Jul 01, · General Motors is using its huge pension fund in a way it never intended. It had planned — and put money aside — for a steady march of retirees over time. But instead, tens of thousands of. Pension. This area shows your accrued benefit and vesting status. Use this page to estimate benefits you could receive at a given retirement date. This area reflects a summary of your GM service history. Use this area to learn more about the program provisions, review Frequently Asked Questions and better understand terminology with a Glossary.
Here are some answers to questions about what the filing means for retirement benefits. A: In the short term, nothing. In a statement, GM said it plans to maintain its employee benefit plans, such as pensions and health care. GM also pointed out that the assets in its pension plan are protected by federal law from claims by creditors.
That means the company can't use funds from its pension plan to meet its obligations or pay its debts. Likewise, contributions to GM's k plan are held in a trust established on behalf of plan participants. Employees' savings, along with matching contributions, don't belong to GM and are off-limits to creditors, the company said. A: Not in the near future, but it's still possible.
The restructured company will need to use some of its operating profits to close the gap, he says. If those profits fail to materialize, the company could end up filing for a second bankruptcy and transferring its pension obligations to the Pension Benefit Guaranty Corp.
The PBGC is a federal agency that insures defined pension plans. A: Not necessarily. The PBGC insures pensions up to limits established by law. The limits are lower for workers who retire before they're A: In a statement, GM said it is working with the Treasury to reduce some retiree benefit obligations by roughly two-thirds. Those reductions will affect life insurance and health care coverage for salaried retirees, among other things, the company said.
A: GM employees and retirees can call The PBGC also has information on its website, www. Shows Good Morning America. World News Tonight. This Week. The View. What Would You Do? Sections U. Virtual Reality. We'll notify you here with news about. Turn on desktop notifications for breaking stories about interest? Q: What will happen to GM's retirement plans? Comments 0. Top Stories. Ontario retracts new restrictions that drew the ire of many Apr 18, AM.
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