If GM Files Bankruptcy, What Happens to Worker's Pension Funds?


By Jenny Rizzo

As the White House mulls over whether or not to throw a life preserver to the Big Three, local auto workers are worried about what bankruptcy could mean for their pensions and their futures.

The GM Powertrain plant in Tonawanda will shut down for a month in January so the company can save money and hopefully hang on until federal aid arrives. That means 1,300 employees will be temporarily laid off and 300 of those workers won't be coming back at all. But GM and Chrysler have warned the White House that they are running out of cash and are facing bankruptcy if they don't get help. And a lot of people in Western New York are wondering what might happen.

There's four engine lines at the Tonawanda plant. Its provided work for thousands of people over the years. There's over a thousand current employees and triple that number of retirees. "The retirees are just as concerned about their pensions and health care as the actives workers are. In fact, we have almost 4,000 retirees in this local alone," said Salvatore Morana, President of UAW Local 774.

Both the retirees and the current workers are worried about what will happen to their pension plans if GM files for bankruptcy. But Jim Wooten, a law professor who specializes in pension and employee benefit law at the University at Buffalo Law School, said there's a federal agency that will insure the pensions if GM can't continue to pay out. "The pension benefits that they've already earned will be subject to protection, both the retirees and the active employees."

The federal insurance will provide up to a maximum payout of $54,000 a year to pension holders. ( multiplied by approximately 1,000,000 is $54,000,000,000 a year.)  It doesn't cover health benefits ( Sorry, we can't afford to have them live for too long), which could disappear if the automaker does. That's another reason why the White House and Congress have to decide whether or not to bail out the automakers.

"Right now, if you look at the legacy costs of the auto industry, those are going to be very difficult costs to bear," said Professor Wooten.

Meanwhile, local businesses are worried about the impact of losing GM's Tonawanda facility. "They're one of major customers. I get a lot of takeout business from GM. I do catering. So it definitely will affect us if they do close," said Susan Baker, owner of Suzy Q's BBQ Shack. She says the ripple effect would hurt more than just GM workers. It could cause layoffs in other industries that are dependent on the Big Three and those are also her customers.

If the car companies go belly up, the union contracts they've signed may not be honored. "If they go into bankruptcy, GM can petition to have that contract undone. Section 1113 of the Bankruptcy Code," said Professor Wooten.

The GM plant in Tonawanda is not slated to be shut down permanently. Meanwhile the Ford stamping plant in Hamburg, which normally goes into a two week holiday slowdown this time of year, will begin a temporary one-month work stoppage on Monday. Ford is in somewhat better shape financially than GM and Chrysler, and so its seeking access to a line of credit from the government.