GM Retirees Go To Court To Protect Their Benefits

A "national advocacy organization" dedicated to preserving the benefits of General Motors' 122,000 formerly salaried retirees could potentially throw a monkey wrench into the bankruptcy reorganization of the giant automaker. The General Motors Retirees Association on June 2 filed a motion in federal bankruptcy court in Michigan to have the court appoint an official committee to protect the rights of these retirees.

The salaried retirees are not entitled to any of the health benefits funded by the VEBA trust that the United Auto Workers set up with GM, Ford and Chrysler. That is because none of these people--including retired clerks, secretaries, engineers, and quality inspectors--were ever union members. So, while union retirees can expect to receive health benefits for the next few years, at least, the salaried retirees are looking at an immediate cut in their benefits as GM scrambles to reorganize itself.

According to a GM information document for retirees, "General Motors is working with the U.S. Treasury to reduce some retiree benefit obligations by roughly two-thirds. This reduction will impact salaried retiree life insurance, salaried retiree health care, executive non-qualified pension, executive retiree life insurance and non-UAW hourly life insurance--"

Dean Gloster, an attorney with Farella Braun & Martell LLP, which represents the General Motors Retirees Association (GMRA), said that under section 1114 of the U.S. Bankruptcy Code, health and life insurance benefits of retirees cannot be modified in bankruptcy without the participation of the beneficiaries. In this case, he says, GM must negotiate with a court-appointed committee representing the salaried retirees, whether or not they belong to the GMRA. (The association itself has only several thousand members, so it does not represent the retirees.)

The GMRA is seeking a court date for a hearing, but has not heard back from GM's attorneys, Gloster said. The automaker, he added, wants to have a hearing on the sale of GM's assets to a successor entity by the end of June. Court approval of that "prepackaged bankruptcy" would essentially ratify GM's agreement with the UAW on retiree benefits, Gloster said. GM's attorneys could not be contacted.

The salaried retirees of Delphi, the GM parts supplier, also fought to retain their benefits in that company's bankruptcy case. The upshot was not a good omen for the GM retirees: The UAW retirees kept their health benefits, while the salaried retirees lost theirs, according to Gloster. GM also assumed the pension obligations of the union workers, while the salaried employees' pensions are being terminated. They will have to rely on the federal Pension Benefit Guaranty Corp., which will pay them a fraction of what their pensions were formerly worth, Gloster said.

There are nearly 400,000 union retirees at GM, more than three times as many as their salaried counterparts. While the UAW retirees will receive health benefits through 2011 if GM comes out of bankruptcy intact, it is unclear whether their benefits will continue undiminished after that. Under GM's agreement with the UAW, the company will pay part of what it owes the union-administered voluntary employees benefit association (VEBA) in company stock. If GM's stock price doesn't rebound, the VEBA might not be able to pay for the union retirees' health coverage.